Have declining rates turned the corner?

One decimal point. How can one-tenth of one percent of anything be so freighted with meaning? But it is, even factoring in margins of error. It’s part math, part psychology. If Yogi were around, he might say homeownership in America, and its role in American Dreams of opportunity, are 90% mental, and the other half statistical.

The job homeownership performs in America–one it has performed ably for many decades–is to contribute opportunity toward American workers’ social and economic mobility path forward. The Great Recession and its aftermath have made that path more difficult, more polarizing, and more costly.

“The war to win in America right now is the opportunity war,” Jonathan Rose, a transformational leader in fair, sustainable, sustaining housing and community development told me recently. “In 1940, a child born into a family in the bottom quartile of the economy among households had a 90% chance that he or she would do better than their parents. We need to focus on opportunity.”

Americans say they want homeownership. The most recent National Association of Realtors 2017 National Housing Pulse Survey shows that eight of 10 of us say we believe owning a home is a smart financial decision. Yet, the data shows a sharp distinction between what Americans dream of and their opportunity to attain that dream.

[The survey] found that 84 percent of Americans now believe that purchasing a home is a good financial decision – the highest number since 2007. Yet six in 10 said that they are concerned about affordability and the rising cost of buying a home or renting in their area.

Somewhere in there, there’s a mathematical and psychological delta that separates what so many American working family households believe they’re working for and what they expect to attain. It’s the opportunity delta. It’s hard to know whether that delta is expanding, or–if homeownership rate declines stop in their tracks and reverse course–or ready to shrink.

Homeownership rates less-than-inched up, from 63.6% to 63.7%–one decimal point–in the Census Bureau’s Residential Vacancies and Homeownership report for Q2 2017, released yesterday. That change of one decimal point was sequential, from the first quarter to the second quarter of this year. Year over year, the change was more pronounced, from 62.9% in Q2 2016 to 63.7% in the same period this year. Less than a full percentage point, but still.

A couple of areas of brightspots nesting in the data:

One is that rates among the young adult part of the ownership spectrum are stabilizing, even as age 35 to 39 usurps the role ages 30 to 34 once had as the dominant age for people entering homeownership for the first time. New Strategist Press editor in chief Cheryl Russell writes

:
Historically, homeownership became the norm in the 30-to-34 age group—rising above 50 percent. But beginning in 2007, the homeownership rate of 30-to-34-year-olds went into a tailspin. In the second quarter of 2011, the rate fell below 50 percent for the first time. It’s been stuck there ever since. The new age of first-time home buying is 35 to 39, but even this age group has slipped toward the 50-percent threshold.

So, that’s positive news that gets even better as you imagine the 77 million strong Millennial generation crossing that 35-year-old benchmark, which just started happening in 2016.

Also, homeownership rates among 65-plus year-olds–where Baby Boomers are swelling the ranks by the minute–are also holding strong versus historical patterns, according to this look at data from Gallup. Gallup analyst Jeffrey M. Jones writes:

Senior citizens (ahem, that’s you, 65-pluser) have been immune from the trend of declining homeownership. Between 2001 and 2009, an average of 81% owned a home. Since then, 82% report owning their home.

One reason for this stability is that many older Americans may own their home outright because they paid off their mortgage in full or they sold their house and paid cash to buy a smaller, less expensive home. In either case, they would no longer pay substantial monthly mortgage payments, and their ability to afford a home would be less tied to receiving a regular and substantial paycheck than younger Americans’ ability to afford a home is.

Gallup’s Jones also notes that more 65-plus Americans continue to hold down jobs, which is another contributor to homeownership as a housing preference.

Trulia chief economist Ralph McLaughlin, who doesn’t tend to spin or hype the data, has some smart observations on the direction and meaning of homeownership rates here. Here’s a few of his top line observations:

• It turns out last quarter’s surprise increase in the homeownership rate may be more than just a statistical blip. For the second consecutive quarter, the number of new owner-occupied households formed outpaced renters. Indeed we may have turned a corner when it comes to the steep dive in homeownership we’ve seen over the past 10 years.
• The damage the Great Recession caused the U.S. homeownership rate may be finally reversing course. For the first time in recent memory, we have a statistically significant year-over-year increase in the homeownership rate.
• While this is exciting news for champions of homeownership in the U.S., those looking to get into the door of homeownership still face strong headwinds. Prices are again outpacing rents, which makes homeownership less attractive, while the meager supply of homes on the market makes finding a starter home particularly daunting exercise.

We don’t want to read too much into data that’s not decisive nor proven over time. It’s just that if there’s going to be an inflection point, reversing the course of decline in homeownership rates to either a more stable state or one that picks up a few percentage points toward historical averages, it has to occur sometime.

Now might be it. Zillow chief economist Svenja Gudell writes:

Hundreds of thousands of renters are finding ways to transition into homeownership, pushing the national overall U.S. homeownership rate up alongside the national rental vacancy rate. Equally encouraging, many new homeowners in Q2 appear to be young, likely first-time home buyers — the homeownership rate among those 35 and younger rose strongly in Q2 and now stands above 35 percent, its highest level since 2015. There were roughly 84,000 new homeowner households created in Q2, accompanied by a decrease of 104,000 renter households, which suggests that not only are many renters becoming homeowners, but that many are also coupling up, too.

That’s how math works, when psychology’s mixed in.