The Census Bureau has confirmed good news: The rate of homeownership has stopped its straight-line collapse and may have begun to rise.
At the peak of the bubble, ownership topped at an unprecedented 69.2 percent of U.S. households, four percentage points above the prior record in 1980. The more common, stable reading in the last 50 years has been between 64 percent and 65 percent. We’ve now found at least new stability at 63.5 percent.
The vertiginous free-fall since 2005 had me scared. I thought we were going to drop all the way to 60 percent, or even lower for two reasons. First, mortgage underwriting is still incredibly tight compared to any time from the 1960s until the Bubble began to inflate ca. 2000. I feared that far too many households would be shut out by that over-tightening, and prevent a general housing recovery.
Second, I thought the youth set, 25-40 had been crippled by the Great Recession, runaway costs of health care, tuition, and student loans. A friend last week told me that “Millennial” is a French word for “lives with parents.”
As we’ve all struggled to figure out why this recovery has been so slow, the missing centerpiece has been housing. Permanent impairment, or a long, long adjustment to post-Bubble realities? Every day, it looks like adjustment in process. Now we have a great reduction in the number of households losing ownership to foreclosure and new households entering the purchase market. The percentage is not going to go up far — as we learned 2000-2005, a ratio above 66 percent includes too many households not ready for ownership.
But just to reach bottom is fabulous news. The number of households is going to grow, so a higher percentage intent on ownership is a double whammy: more population means more households, and a higher percentage buying.
In another aspect of household growth we can look for catch-up additions. The rate of formation has been suppressed by hard times, as always. In recessions households increase in number of members (banding together for survival), and then in recovery we spread out.
The modest housing recovery we have now may well strengthen gradually for several years.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
