The latest U.S. Census Bureau report shows that homeownership was only up 0.1% from the last quarter despite news of ever-increasing home sales. Experts estimate a current average of 20% of home sales go to investors, but new government programs to provide bulk purchase options to big buyers and the fact that investor-bought homes are not included on census rolls for homeownership likely mean that number is significantly higher. Experts at Capital Economics say that the marginal increase in homeownership will erode into freefall as the economic downturn persists and rentals become a more desirable option for Americans. For more on this continue reading the following article from TheStreet.
The supply of empty homes for rent is falling, and the nation’s homeownership rate is hovering near a fifteen year low.
How can that be when the housing market is finally turning around and more homes are selling?
The answer is simple: Investors.
The nation’s home ownership rate ticked up a statistically insignificant basis point, from 65.5% in the first quarter of this year to 65.6% in the second quarter, according to the U.S. Census Bureau. Q1 was the lowest home ownership rate since 1997 and is down from the peak of 69.4% in 2004.
Given that home sales improved significantly during the first half of this year, you would think that home ownership rate should have surged higher, but the rate is calculated using only owner-occupied homes. If an investor buys one home or 100 homes, those homes are not even put into the calculation because they owner doesn’t live in the homes. Realtors estimate around 20% of homes sales are currently to investors, but given bulk deals offered by the government and banks on foreclosed properties, that percentage is likely higher.
"The very modest increase in the homeownership rate in Q2 does not persuade us to alter our view that the share of the population who own their home will fall further over the next couple of years," writes Paul Diggle of Capital Economics. "Meanwhile, supply conditions in the rental market are tightening, with a falling proportion of single and multi-family rental homes vacant."
Rental vacancies in fact fell to their lowest rate since 2001. That is why so many investors are rushing in to buy distressed properties. The rental market his hot and getting hotter. Average asking rent rose five percent from a year ago, though they are down slightly from the previous quarter.
Since the peak of home ownership in 2004, six and a half million additional U.S. households are renting, which Diggle calculates is equivalent to 90% of the increase in total household numbers over that time. He estimates home ownership will fall to 64% over the next two years.
An investor-driven recovery in home sales is certainly positive and is helping to clear the huge backlog of distressed properties on the low end; investors are necessary now, but until real owner-occupants, including the all-important first-time home buyer, return, a robust recovery in all price tiers of the market will remain out of reach.
This article was republished with permission from TheStreet.