The U.S. homeownership rate may have finally bottomed out, as the share of Americans who own homes is steadily climbing. The ownership rate posted an increase in the second quarter, reversing a sharp downward trend that begun in the Great Recession.
The homeownership rate was 63.7 percent in the second quarter, the U.S. Census Bureau reported. That marks nearly a full percentage point increase from a year ago. Last year, the homeownership rate had plunged to a 50-year low of 62.9 percent.
“The addition of 1.2 million households being homeowners is clearly good news, as more households are participating in housing equity gains,” says Lawrence Yun, chief economist for the National Association of REALTORS®. “But let’s keep it in perspective: There are fewer homeowners today compared to a decade ago, while renter households have risen by 8 million.
So it is still the case that the massive $7 trillion in housing wealth gains from the cyclical low point has been accumulated by a fewer number of families in America. Further advances in homeownership are required to strengthen and broaden the middle class.”
Student debts have seemed to affect homeownership rates, according to the Federal Reserve Bank of New York.
About 32% of those in their 20s owned a home in 2007, but that’s fallen drastically to 21% in 2016.
While the poor labor market and memories of the housing bubble certainly played a role, student debt can explain up to 35% of the decline, according to a report from the Federal Reserve Bank of New York released Thursday.
The results suggest that the rise in college costs will result in “weaker spending and wealth accumulation among young consumers in the years to come.”
It’s consistent with surveys that have asked those with student debt if it affected their decision to buy a home. Half of those under the age of 35 surveyed by the National Association of Realtors in 2016 said it had delayed their purchase. And 25% told Pew Research Center that student loans had made it harder to buy a home in 2011.
Let’s consider some of the financial realities about owning a home.
In an opinion piece in the Fresno Bee newspaper, the writer made the case for why Congress should keep a tax incentive to encourage Americans to be homeowners. Regardless of your opinion on the matter, the author’s points on the financial positives of homeownership were beneficial and worth a read.
“Owning a home is one of the best ways to build long-term wealth, providing both equity accumulation and tax benefits over time. In 2013, the median net worth of homeowner families was $195,400, while the median net worth of renters was $5,400, according to the Federal Reserve.”
“Homeownership strengthens communities, encourages higher civic participation, boosts children’s educational performance, lowers crime rates, and improves health-care outcomes. Moreover, homeowners bring more stability to neighborhoods because they tend to move less often.”
“Homeownership helps provide predictability. Individuals can enjoy steady and consistent housing costs thanks to the tax incentive that allows them to own a home. That’s because a fixed-rate mortgage payment might not change for 15 to 39 years, while rents typically increase 2 to 3 percent a year.”
After hitting bottom in 2012, home prices took off dramatically before leveling off a bit in mid-2014. In the last two months, though, they turned higher again. The amount of equity homeowners now have — the value outside their mortgage debt — has doubled in the last five years, according to CoreLogic.
September home prices showed a 6.3 percent annual gain, slightly more than in August and a clear sign that prices are heating up again after cooling through much of spring and summer. CoreLogic’s chief economist said that home equity wealth has doubled during the last five years to $13 trillion, large because of the recovery in home prices.
While homeowners today show more wealth on paper, they are not extracting it at nearly the rate they did during the last housing boom. Near-record-low mortgage rates have certainly prompted thousands of borrowers to refinance and lower their monthly payments, but a very small share have extracted cash in these refinances and home equity lines of credit (HELOC).
Due to shifts in global bond markets, the average interest rate on a 30-year fixed-rate mortgage was 3.49 percent Monday, which is down from 4.2 percent a year ago and 3.9 percent at the start of 2016. As a result, now may a good time to check the rate on your home mortgage, because borrowers could save money by refinancing. For that, American homeowners can thank British voters, central banks in Europe and Japan, and a global economy that just can’t get out of first gear. Furthermore, mortgage rates could fall further in the weeks ahead as banks start to pass more of the savings from low rates in the bond market through to customers.