Strong Owner Household Formations in 2018
According to the Census Bureau’s Housing Vacancy Survey (HVS), the U.S. homeownership rate increased in the last quarter of 2018 and now stands at 64.8%. The national homeownership rate is on a sustainable upward trend, after dropping to a cycle low of 62.9% in the second quarter 2016. Compared to the peak of 69.2% by the end of 2004, the homeownership rate is still down four percentage points.
The HVS also provides a timely measure of household formations – the key driver of housing demand. The housing stock-based HVS revealed that the count of total households increased to 122.4 million in the last quarter of 2018 from 120.1 million a year ago. The gains are largely attributed to strong owner household formation. Indeed, the number of homeowner households has been climbing since the third quarter of 2015, while the number of renter households has been on a downward trend. This implies a transition from renting to owning is the powerful driver of household demand. Specifically, the number of homeowners increased by 1.7 million, but the number of renter households declined by 167,000 in 2018.
The homeownership rates among all age groups under 64 increased in the fourth quarter 2018. Households ages 35-44 registered the largest gains among all households, 2.2 percentage points from a year ago. The homeownership rate of millennials, mostly first-time homebuyers stood at 36.5 % in the last quarter, a half percentage point higher than a year ago. This indicates that millennials are gradually returning to the for-sale housing market. However, current homeownership rates for adults ages under 35 are still 5.4 percentage points lower than before the Great Recession. Households between ages 45-54 and 55-64 saw increases in ownership rates in the fourth quarter. The homeownership rates of those between ages 45-54 experienced a 0.6 percentage point increase on an annual basis. The homeownership rates of household ages 55-64 edged up to 75.5% in the last quarter 2018 from 75.3% in 2017. However, the homeownership rate of households who are 65 and older did see a drop in the last quarter compared to a year ago.
The nonseasonally adjusted homeowner vacancy rate remained low at 1.5% in the fourth quarter 2018. At the same time, the national rental vacancy rate declined to 6.6%, down by 0.5 percentage point from the third quarter.