Today I ran across a fact about current housing market that made me stop in my tracks. Homeownership is at its lowest in 25 years. Wait, excuse me? You must have your facts wrong, sir. We can’t seem to slow down this incredible surge in today’s market! Unfortunately, I was mistaken. And the reason behind it is not what you think.
According to the U.S. Census, the rate of homeownership fell to 63.7%, a rate that hasn’t been matched since 1990. But if housing demand is rising and pricing is rising, why isn’t homeownership? The upswing in the economy is actually having a reverse effect on the housing market. Hold on. Let me explain…
Because there is a rise in the economy, there are more millennials moving out of their parents’ homes and into a rental property. This increases the demand of rental properties. In fact, rental vacancies are at an all-time low. The more demand there is for these soon-to-be rental properties, the price for said properties begins to rise, which is what we can see from the latest market reports. Unfortunately, the rise in pricing for these rental properties doesn’t allow first-time buyers to buy. Instead, these single-family homes are bought by investors and rented.
And therein lies the homeownership hit. It really comes down to inventory and these days there isn’t enough of it. And sadly, this leaves a lot of lower and middle-class families unable to join the ranks of homeowners. The more prices rise and expectations are met and/or exceeded, the more homeownership will drop. David Blitzer of S&P Dow Jones Indices states, “Home prices continue to rise and outpace both inflation and wage gains. If a complete recovery means new highs all around, we aren’t there yet.”
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