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WEA Reads: Homeownership hits 50-year record low

Homeownership hits 50-year record low

BERKELEY, Calif. – March 27, 2017 – Over the past 10 years, homeownership rates in the U.S. stumbled, wiping out more than three decades of increases. Overall, the national homeownership rate dropped from a peak of 69 percent in 2004 to an average of 63.4 percent in 2016.

Rosen Consulting Group (RCG) estimates that more than $300 billion would have been added to the national economy if the homebuilding industry alone returned to a more normalized level in 2016, representing a 1.8 percent boost to GDP (gross domestic product), according to a new report, Homeownership in Crisis: Where are We Now?, released by Rosen Consulting Group and the Fisher Center for Real Estate & Urban Economics, Haas School of Business, University of California, Berkeley.

“Bolstering homeownership in a safe and sound way is not just about helping households secure financial stability, but may be the single most important factor in returning the United States to a path of robust economic growth,” says Ken Rosen, chairman of Rosen Consulting Group and UC Berkeley’s Fisher Center for Real Estate & Urban Economics. “This report highlights the current state of homeownership and the many factors that contributed to the plunge in homeownership rates during the past decade.”

Compared with pre-recession peaks, homeownership declines were largest among minority households, young adults, one-person households and single-parent households.

National homeownership trends: Key findings

  • As of 2016, the African American homeownership rate dropped to 41.5 percent, falling by 7.6 percentage points from the previous peak – the largest decline of any major racial group and 30 percentage points lower than white household homeownership. African American homeownership declined even as the total number of African American households increased by 2.7 million (19.8 percent) since 2005.
  • By age, young adults were hit hardest by homeownership declines. The homeownership rate for households aged 25 to 29 years old dropped by 10.9 percentage points to 30.9 percent in 2016.
  • The homeownership rate for households aged 30 to 34 years fell by 12.0 percentage points to 45.4 percent compared with the pre-recession peak.
  • In 2015, the homeownership rate for single-parent families was 48.2 percent – 31 percentage points below married family homeownership rates. One person households performed only slightly better with a homeownership rate of 52.2 percent, 27 percentage points lower than married families.

Why the plunge in homeownership?

  • More than 9.4 million homes were lost in the foreclosure crisis through short sales and deed-in-lieu transactions from 2007 through 2015. Access to easy, yet unsafe, credit in the form of non-traditional mortgage products was a major factor.
  • After the crisis, lenders moved in the other direction, severely tightening access to safe and affordable mortgages. Since 2010, lending to applicants with credit scores ranging from 620 to 660 retreated sharply and loans to homebuyers with credit scores below 700 declined to 27 percent of first-lien mortgages in 2014, down from 33 percent in 2010. As of third quarter 2016, the median credit score for conventional mortgages was 760, up from 707 in the fourth quarter of 2006.
  • The rise in student debt is another factor. Total student debt nationwide quadrupled since mid-2004 to approximately $1.3 trillion, with both the number of borrowers and the average debt load rising, making it harder for many young households to afford homeownership.
  • Following multiple years of rising rents and limited income growth, cost-burdened renter households, defined as those paying more than 30 percent of income toward rent, increased by 3.6 million, which lowered the ability to save for a downpayment.
  • The overall pace of household formation decreased sharply following the recession, reducing demand for all types of housing. An estimated 3.4 million additional households would have formed between 2008 and 2015 if household formation had remained on pace with the long-term average.

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