The U.S. homeownership rate fell to the lowest level in 15 years in the first quarter as borrowers lost homes to foreclosure and tighter inventory and credit kept buyers off the market.
The rate dropped to 65.4 percent from 66 percent in the fourth quarter and fell a full percentage point from a year earlier, the Census Bureau said in a report today. That is the lowest level since the first quarter of 1997, and down from a record 69.2 percent in June 2004.
Mounting foreclosures are displacing borrowers, while a lack of inventory has kept home sales from accelerating amid record affordability, the National Association of Realtors reported April 19. Stricter mortgage standards are also limiting purchases as rental demand surges, said Paul Diggle, property economist with Capital Economics Ltd. in London.
“Although house prices and mortgage rates have fallen to a level that makes buying preferable to renting, ongoing problems accessing mortgage credit are preventing many households from taking advantage,” he wrote in a note today.
The U.S. apartment vacancy rate fell to 4.9 percent in the first quarter, an 11-year low, according to New York-based Reis Inc. (REIS:US) The vacancy rate for rental homes was 8.8 percent in the first quarter, compared with 9.7 percent a year earlier, the Census Bureau said in today’s report.
Of the estimated 132.6 million U.S. homes, 18.5 million, or 13.9 percent, were vacant in the first quarter. A year earlier, about 19 million homes were vacant, according to the report. That includes homes for sale or rent or held off the market, and vacation properties used seasonally.
“Both homeowner and rental vacancy rates dropped during the first quarter, which obviously bodes well for housing,” because shrinking inventory will boost rents and spur demand for new homes, Stephen East, an analyst with International Strategy & Investment Group LLC, wrote in a note to clients.
Homeownership may fall further and repossessions may increase this year as lenders step up foreclosures after a $25 billion agreement by the nation’s largest loan servicers in February to settle allegations of improper practices. Foreclosure filings fell to the lowest since 2007 in the first quarter as banks slowed actions before the settlement, according to RealtyTrac Inc.
The ownership rate may drop below 64 percent by the end of 2015 and stay there for years, Scott Simon, the mortgage bond head of Pacific Investment Management Co. in Newport Beach, California, said in an e-mail today.
“It will be lower by 2017,” he said. “It will be lower in 2020.”
New Rental Households
About 6 million borrowers will lose their properties in the next five years because of inability to pay, creating 4 million new rental households, Simon said in an April 24 interview on Bloomberg Television.
The homeownership rate fell 3 percentage points from a year earlier to 61.4 percent in the first quarter for people aged 35 to 44, the biggest drop of any age group. The Northeast had the biggest regional decline, with the ownership rate falling 1.4 percentage points to 62.5 percent. The West had the lowest ownership rate at 59.9 percent, down 1 percentage point from a year earlier.
The U.S. homeownership rate rose to a record in 2004 when President George W. Bush, running for re-election, called for expanding home-loan availability to create an “ownership society.” The current rate of 65.4 percent matches the average since 1965, when the Census Bureau began reporting the figures, according to data compiled by Bloomberg.
Home prices fell 3.5 percent in February from a year earlier and are 35 percent below their July 2006 peak, according to the S&P/Case-Shiller index of 20 U.S. cities. The average rate for a 30-year fixed loan was 3.88 percent last week and reached 3.87 percent in February, the lowest level in at least four decades, according to Freddie Mac.
About 2.37 million homes were listed for sale in March, a and 6.3 month supply and down 22 percent from a year earlier, the Realtors association said on April 19. A six-month supply is considered a healthy market, according to the group.
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