Homeownership Rates Decrease from 2009

Today, the US Census Bureau released the US homeownership data for the 3rd quarter of 2010. According to the report, 66.9% of Americans own their own home. This number remained the same as the previous quarter, and down 0.7% from 3rd quarter of 2009. From 1989 through 1994, the percentage of American who owned their own home stayed fairly consistent, ranging from 63.8% to 64.2% (with a brief spike in late 1993). After that, the homeownership rate grew consistently until the first quarter of 2005, when it reached a peak of 69.1%. It remained level in 2005 and 2006, before beginning to drop in 2007.

The report also contained data about the number of vacant houses in the United States. Last quarter, 2.5% of all residential homes were unoccupied. This figure did not change from the second quarter and was down from last year. The vacancy rate has declined consistently since hitting 2.9% in 2008. Despite the year-to-year decline, the number of vacant houses remains far higher than historical averages. Between 1996 and 2004, the percentage of of vacant houses never surpassed 2%.

The decline in homeownership over the last several years reflects the uncertainty over the future of the economy. When faced with a difficult job market, young people are more likely to rent or live with family than take on the risks of a mortgage. While the First Time Homebuyers Tax Credit may have encouraged some people to buy a home, many would have likely purchased a home even without the tax credit. For those who were either unemployed or underemployed, even with the tax credit, purchasing a home was, and remains, simply not an option.

The vacancy rate could have an impact on the prices of existing homes, especially since it does not include foreclosures not yet listed for sale. According to the National Association of Homebuilders, the building cost per square foot has dropped from its peak of $111.86/ft in 2006, to $92.46/ft in 2009. When coupled with lower land prices, this decrease in the cost to build makes new construction a very appealing option for those who are able to take advantage of historically low interest rates. If this trend continues, it could have deflationary effect on the prices of the growing inventory of homes built more than 10 years ago, that simply can't compete it terms of condition and quality with new construction. Builders also have the chance to tailor their product to match the current trends (master-on-the-main floor, great room concepts, etc.), an opportunity unavailable to existing home owners.

All of this could change rapidly...if the economic recovery picks up steam and creates opportunities for more first-time homebuyers, an increase in demand will reduce inventory and have a postive effect on the prices of existing homes. As stated above, the vacancy rate has dropped from its high point in 2008. If this continued to drop, it will ease the deflationary pressure on existing home prices. In the short term, however, buyers will likely continue to look for bargains on existing homes (short-sales/bank-owned) or new construction.