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Recent Uptick in U.S. Homeownership Stalls in Q1 2017

By Aaron Terrazas on 27 Apr 2017

• The U.S. homeownership rate was flat in Q1 2017 after increasing for two consecutive quarters.
• The number of homeowners fell slightly quarter-quarter in Q1, while the number of renter households increased slightly.
• The rental vacancy rate was also roughly flat in Q1, but has recovered strongly in urban and suburban markets – while stagnating in rural areas.

After two consecutive quarterly gains, the recent upward swing of the U.S. homeownership rate stalled at the start of 2017.

The homeownership rate was essentially unchanged in Q1 2017, according to the U.S. Census Bureau. The headline, non-seasonally adjusted homeownership rate edged 0.1 percentage point lower from Q4 2016, to 63.6 percent. The seasonally adjusted homeownership rate edged 0.1 percentage point higher, also to 63.6 percent. Neither change was statistically significant.

After years of steady declines throughout the housing recession and into the recovery, the U.S. homeownership rate likely bottomed out in mid-2016, reaching its lowest recorded level since the 1960s. It began to climb back during the second half of last year, but there was little movement in the first three months of 2017. Overall household formation has been stagnant since September, and a small increase in the number of renter households in Q1 was offset by a small decrease in the number of owner households.

Despite the stalled progress over the past six months or so, a longer view reveals more promising trends. Household formation, in general, is up from a year ago: Compared to the first quarter of 2016, there are 854,000 (1.1 percent) more homeowner households and 365,000 (0.9 percent) more renter households nationwide. That growth in homeowner households represents the strongest annual increase recorded in Q1 since 2005.

And over the past year, the homeownership rate appears to have turned a corner in all major regions – except the hard-hit and slow-to-recover Midwest, where it continues to fall (though the Midwest does continue to have the highest homeownership rate among the four major U.S. regions). But there’s still ample room for improvement. Current homeownership rates in the West and Midwest are at their lowest levels since the early 1990s, while the homeownership rate in the Northeast is at its lowest level since the early 1980s, and the homeownership rate in the South is at its lowest level since the late 1960s.

The rental vacancy rate was also essentially unchanged in Q1. After touching a 31-year low in Q2 2016, the non-seasonally adjusted vacancy rate edged up 0.1 percentage point from Q4 2016, to an even 7 percent. The rental vacancy rate in the country’s densest urban areas[1] remains at its lowest levels since 1986, while the rental vacancy rate in suburban communities is now approaching levels seen in the mid-1990s. The rental vacancy rate in rural communities remains elevated, at levels comparable to the early-2000s, and has not recovered nearly to the extent of rental markets in urban and suburban communities.

Among the country’s 35 largest markets, the homeownership rate increased most from Q1 2016 in:

• Philadelphia (+3.8 percentage points, to 67.5 percent)
• Minneapolis-St. Paul (+3.1 percentage points, to 71.5 percent)
• Atlanta (+2.8 percentage points, to 64.4 percent)
• Austin (+2.7 percentage points, to 58.4 percent)
• San Diego, CA (+2.2 percentage points, to 57.9 percent)

The homeownership fell the most between Q1 2016 and Q1 2017 in:

• Sacramento (-6.3 percentage points, to 55.6 percent)
• Denver (-5.8 percentage points to 56.8 percent)
• San Antonio (-5.1 percentage points, to 57.9 percent)
• Riverside, Calif. (-3.4 percentage points, to 61 percent)
• San Jose, Calif. (-2.9 percentage points, to 47 percent)

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[1] Central Cities defined by the Census Bureau’s terminology.