The U.S. homeownership rate was 65.3% in Q1 (both seasonally and not seasonally adjusted).
The seasonally adjusted rate rose 0.4 percentage point from Q4—the largest quarterly change since Q3 2016—and rose 1.1 percentage point from Q1 2019.
Homeownership has been gradually rising since 2016 following a decade-long decline. Low mortgage rates, low unemployment and millennials moving more firmly into life stages where homeownership is traditional were strong factors in the notable rise of homeownership among younger cohorts in Q1.
Early signs of COVID-19 are not captured in Q1's homeownership rate. The economic disruption from the pandemic will dampen (or reverse) the upward trajectory of homeownership. On the supply side, the number of newly listed homes for sale has already fallen dramatically.
While the financial difficulties of buying a house and the mismatch between consumer demand and available housing product will challenge homeownership levels this year, changing consumer preferences for more suburban housing may be a silver lining for homeownership (and risk to multifamily) in the post-pandemic landscape.
Youngest Cohorts Have Largest Gains From Trough
Homeownership for the under-35 aged households—nearly all millennials—experienced the largest year-over-year increase in Q1 (1.9 point). The 35-to-44 cohort—half Gen Xers, half millennials—experienced the next largest increase (1.2 point).
The 55-to-64-year old households—all baby boomers—had the third largest year-over-year gain (0.9 point). The 45-to-54 age group—all Gen Xers—trailed closely behind with a gain of 0.8 point.
From the 2004 peaks to the 2016 troughs in homeownership rates, the largest declines occurred with the younger cohorts. Homeownership in households aged 35 to 45 years old fell 12.1 percentage points and the under-35-year-old households fell 9.5 percentage points.
Since the troughs, however, these two cohorts have also experienced the largest increases in homeownership rates. Homeownership of the youngest households rose 3.2 percentage points since the trough, compared to the gain of 2.4 points for all ages. Households aged 35 to 45 years old experienced a 3.5 percentage point gain.
Homeownership rates for the 65+ year olds and for the 55 to 64-year olds have experienced minimal movement since the trough three years ago (0.8 point and 1.6 point, respectively).
Northeast & South Have Largest Rise
Regionally, the Midwest maintained the highest homeownership rate in Q1 (69.2%). The Northeast and South regions had the highest year-over-year gains at 1.7 and 1.4 percentage points, respectively.
Los Angeles, New York, San Francisco and San Jose had the lowest metro homeownership rates in Q1. Metros with lower rates typically have either high housing costs or high levels of in-migration.
Lifestyle & Housing Costs Influence Trends
During the 2008 recession and in the early years of recovery, the stressed economy and uncertain individual household finances contributed greatly to reducing homeownership rates. Yet homeownership rates continued to fall even as the economy and households began to get back on their feet. Lifestyle factors have influenced homeownership trends, including marrying and starting families later than previous generations and placing a higher value on housing flexibility (renting allows for more mobility). The greater social acceptance of renting and the increased popularity of urban living (where renting is more common than owning) have also kept homeownership gains subdued.
Surveys have shown, however, that most renters want to own a home at some point. Therefore, the rising cost of housing is the major deterrent to homeownership. Prior to COVID-19, U.S. home prices had risen by about 6% annually since the recession with significantly higher increases in many markets.
The other significant structural driver in rising homeownership in recent years is demographics: aging millennials. Homeownership increases with age, and millennials are moving into homeownership, albeit at a slower pace than previous generations.
The economic and capital markets turmoil resulting from COVID-19 have led to lower home mortgage rates, but also much more unemployment and job uncertainty. Therefore, the rising homeownership rates are likely to stall until the U.S. economy and consumer confidence are both restored.