The housing market is recovering. Prices are higher. Volumes are picking up. And builders are feeling more confident.
But there’s one statistic that continues to fall: the homeownership rate. While this has led many observers to wonder whether we’re becoming a nation of renters, the data simply doesn’t support such a gloomy conclusion.
A deceivingly dramatic decline
To be clear, the homeownership rate has dropped considerably over the past few years. At its peak in 2004, an estimated 69.2% of occupied housing units were owned by the people living in them. By the first quarter of this year, the percentage had fallen to 65%.
If you didn’t follow the housing market closely, you’d be excused for concluding that a roughly four percentage point decline in the homeownership rate is nothing to write home about. But once you start looking into the numbers behind the figure, it becomes apparent that this is a problem, or, at least, that it could cause havoc in the broader economy.
Look at it this way. In 2012, there were an estimated 114.5 million occupied housing units in the United States, 74.9 million of which were owner-occupied. That equates to a homeownership rate of 65.4%.
Now, assume that the rate had never declined from its high of 69.2% in the second quarter of 2004. Under this scenario, a further 4.3 million people would own their homes today as opposed to renting. That’s roughly 200,000 foregone home sales a year.
What’s behind the fall?
The question of what’s behind the fall in the homeownership rate is more nuanced. But while the evidence is circumstantial in nature, it’s still relatively clear.
“The recent declines in the homeownership rate can be attributed to the high rates of foreclosures, which forced many people to rent as they lost their homes,” said Zillow Inc (NASDAQ:Z) senior economist Svenja Gudell.
You can see this in the following figure, which illustrates the number of properties in some stage of foreclosure between 2005 and 2012. Before the crisis, fewer than 1 million properties had either been foreclosed upon, auctioned off, or were being held by banks following a default. By 2009, that number had shot up to more than 2.8 million.