Home >> Daily Dose >> Homeownership Rate Forecasts: Seeing the Big Picture
Print This Post Print This Post

Homeownership Rate Forecasts: Seeing the Big Picture

Housing experts are debating whether the homeownership rate, which at 62.9 percent is at a 51-year low, will rise or continue to fall—some say it might even drop below 60 percent.

But these projections might be overly pessimistic, according to Freddie Mac Chief Economist Sean Becketti.

The homeownership rate among demographics that have historically had lower-than-average rates has dropped substantially; for example, the homeownership rate among African Americans rose to a peak of 49.7 percent in 2004, when the overall homeownership rate peaked. Twelve years later, the African American homeownership rate has returned back to its mid-1990s levels of 41.7 percent.

The main reasons why the homeownership outlook is bleak are increasing age and increasing diversity.

“Older age groups have higher homeownership rates, and America is getting older, a factor that will prop up the homeownership rate for a decade or so,” Freddie Mac Chief Economist Sean Becketti said. “Counterbalancing the influence of aging on the homeownership rate is the projected increase in demographic diversity.”

Historically, non-Hispanic whites have had the highest homeownership rates—nearly 18 to 28 percentage points higher than African American, Asian, and Hispanic households. Nearly three-quarters of baby boomers (those born from 1946 to 1965) are non-Hispanic whites, compared with only 59 percent of millennials, Becketti said. As the baby boomer generation leaves the picture, the more diverse millennial group will take center stage—and, Becketti said, “If historical demographic differences in homeownership rates persist, this increased diversity eventually will drive the homeownership rate significantly lower.”

There are three reasons to be skeptical about whether or not these negative homeownership rate projections are accurate, according to Becketti. First off, the future of housing finance is uncertain.

“No one knows when a consensus on these complex issues will be reached in Congress, but whatever choices are made will surely influence the future path of homeownership,” Becketti said.

Also, many analysts have predicted that the household formation and homebuying behavior of millennials will catch up to that of previous generations, which will likely cause the homeownership rate to rise. But most important, Becketti said, non-white demographic groups may overcome the factors that have been holding down their homeownership rate.

“The income and education gaps that are responsible for some of these differences may be narrowed or eliminated as the U.S. becomes a ‘majority minority’ country,” Becketti said. “And the mortgage market may shift in ways that chip away at the remaining gaps—the ones that can’t be explained by income or education and that highlight constraints on access to credit.”

Becketti notes that borrowers who don’t fit smoothly into the mass production of today’s mortgage industry, which is supposed to reduce costs, will continue to gain a larger share of the potential homebuyers market—and that it will become “increasingly expensive” for lenders to overlook this group.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
x

Check Also

Survey: Homeownership Remains Elusive for Baby Boomer Renters

A recent look into housing affordability by NeighborWorks America has found that three in five long-term baby boomer renters feel homeownership remains unattainable.