At 65.8%, it’s the first time rates have exceeded their long term average since 2012.
By Manuel Gutierrez, Consulting Economist to NKBA
Homeownership rates in the U.S. increased to 65.8% in the fourth quarter, building off gains made in the second and third quarters (Fig. 1).
Compared to 2019, the homeownership rate was 0.7% higher at the end of 2020. Although there have been steeper annual gains, the homeownership rate today is above its long-term average of 65.2% for the first time since 2012.
A clear contributing factor to the increase was pandemic-related, as many households sought more socially distant shelter by moving from high-density cities and metropolitan areas, often converting from rentals.
The current homeownership rate of 65.8% is still several percentage points below the 69.2% peak from 2004. However, gains made over the last four years stand on firmer ground than those produced in the early 2000s. The run-up in the homeownership rate from the mid-Nineties through 2004, however, was driven by a significant number of government policy initiatives and lending practices, which contributed to the well-publicized bankruptcy of millions of homeowners who lost their homes. It led to a significant five percentage point fall over the next decade, to a rate of 64%.
Last year’s improvement was enjoyed across all age groups, as can be seen in the left panel of Figure 2. Percentages in blue at the bottom indicate the percent gain over 2019. The bars also illustrate that homeownership increases with age, which is expected as wealth accumulation is more likely as people get older. Conversely, those under the age of 35 are still in the process of forming a household and moving into a home of their own.
Although homeownership increased across all age groups, corresponding gains were not equal. The largest gains are found at both extremes, with those over 65 years of age showing a 1.2 percentage point gain, and the those under 35 increasing by 0.9 points.
There were also differences in homeownership by race or ethnic groups. The rate for white and Hispanic households reflects the average ages of those two groups. Households headed by whites are older, on average 58 years of age, putting them within prime homeownership age. Hispanic households are much younger on average, typically below age 35, making them less likely to own a home.
Large differences are also evident regionally (Figure 3.) The lowest rates are in the West and Northeast, both with a predominance of metropolitan areas that have large numbers of renter households.
More than half of the households in large metro areas in these two regions, such as New York or Los Angeles, are renters. These two regions also posted the smallest gains in homeownership last year.
In the West, the rate was virtually unchanged, up by just 0.1%.
In the Northeast, the gain wasn’t much better, up just 0.3 of a point.
The Midwest, with the highest homeownership rate at 70.8%, was up 1.3 percentage points from a year earlier.
The most populous region, the South, had a rate 67.7%, up a point from the year before