There’s good news in the real estate market. The Home Ownership Rate saw a slight increase in the first quarter of 2017. Why is this such great news? That rate has been in decline since 2004.
This rate is a measure calculated by the US Census Bureau and is the percentage of homes that are owned by their occupants.
“The name “homeownership rate” can be misleading. As defined by the US Census Bureau, it is the percentage of homes that are occupied by the owner.
It is not the percentage of adults that own their own home.
This latter percentage will be significantly lower than the home ownership rate because many households that are owner-occupied contain adult relatives (often young adults, descendants of the owner) who do not own their own home, and because single building multi-bedroom rental units can contain more than one adult, all of whom do not own a home.”
The US Census Bureau began tracking this rate in 1965. It peaked during the fourth quarter of 2004 at 69.2 percent. Since then it has dropped, and it bottomed out in second quarter of last year, at 62.9 percent.
However, despite that fact, there was a silver lining. According to an article from August of last year in the Washington Post by Charles Lane:
Contrary to entrenched conventional wisdom, however, the ongoing decline of the home ownership rate is actually good news.
Here’s why: Thanks to recovering real estate values, today’s homeowners as a group have the same equity in their property — roughly 58 percent — that the record-size cohort did back in late 2004, according to the Federal Reserve.
Ergo, there’s now more equity, on a per- household basis; current homeowners’ tenure is that much more sustainable and secure.
“They are now more able to weather an economic disaster,” says Ralph McLaughlin, chief economist of Trulia.com, the online home-listing service.
Mr. Lane offers some more great insight in the article regarding the increase in equity that home owners have today:
To put it another way: The United States actually has more home ownership, in economic terms, than it did when the home ownership rate, a measure of mere legal ownership, was higher. Accordingly, the economy should also be less vulnerable to another real estate shock.
We’re still not back to the rock-solid days of 1983, when the home ownership rate was a hair under 65 percent and equity hit an all-time high of 70 percent.
But the current situation approximates a happy ending to an unhappy story: the brutal real estate shake-out that impoverished and destabilized so many families across America.
What’s Driving The Increase?
There are many reasons for the increase. Home sales have been on the upswing since the real estate recovery began back in 2013. Here is a look at home sales over the last few years:
Currently there is strong buyer demand in the market, despite the fact that home values are increasing more rapidly than expected.
Home values have been exceeding their year-over-year numbers every month since the first quarter of 2012. In fact, the Case Shiller Index has had 5 consecutive months of record high home values:
Consumer Confidence High
I mentioned this in a previous post, but another factor in this demand is the increase in consumer confidence.
Often, the public perception of the economy may not be totally congruent with the reality. Even if the economy is doing well, public perception may not align with it. Often, the case is perception is reality.
However, that is not the case currently.
Forbes released their Annual American Dream Index back in February. This measures American’s outlook on the economy for the upcoming year.
100 is the base point, so basically anything above 100 is good. Here are the results of that survey, broken down by state:
Gallup also released their most recent US Economic Confidence Index, which reached new highs:
Home Ownership Still The American Dream
A recent survey from Gallup polled American’s to find out what they thought was the best long term investment.
Once again, real estate was the number one choice (you can see these results in greater detail here):
More Good Signs
The rapid increase in home prices, coupled with the potential for rising interest rates, could put a damper on the housing market.
That is not happening however, because of the increase of jobs and wages.
Because of the growth of both jobs and wages, it is still affordable to buy a home.
Another factor in the increase in the Home Ownership Index is the fact that we have also seen an increase in the first quarter of 2017 of another index– the Home Affordability Index:
The Home Affordability Index had been declining since 2012, but the first quarter of this year saw a slight uptick.
So, basically, a big reason for all of these factors is simple: the economy is doing well and American’s are feeling confident in both the economy and the real estate market.
Will We See Home Ownership Numbers Continue To Increase?
If you look at the Pending Sales numbers, then it looks like we will see continued gains in the home ownership rate.
Although the number of Pending Sales (homes under contract) declined for the second consecutive month in April, you first have to understand the market dynamics behind the numbers.
Pending Sales did not decline because there was a lack of demand. Actually, quite the opposite–demand remains strong.
However, there is a lack of inventory, creating strong competition for available homes. There are too many buyers, not enough homes.
The Pending Sales numbers have been very strong over the last few years, and each year has seen big increases.
That remains true in 2017, although low inventories have affected the numbers. Still, 2017 is still ahead of previous years:
Buyer demand is further evidenced by taking another look at the number of homes sold in 2017 compared to 2016:
All indications point to this being a good time to buy a home. If you are thinking about buying, then it’s important that you choose the right Charleston SC realtor to work with.