Since the housing sector’s downturn began in 2006, most of our focus has been on weekly and monthly indicators of housing activity. Throughout this period, home sales, new residential construction, and home values have tumbled downward at alarming rates, while housing supply, fed by mounting foreclosures, has grown to excessive levels. These indicators and others have helped us successfully monitor and track the current housing downturn. But sometimes you need to get a broader picture of market trends and the U.S. Census Bureau’s recently released report on residential vacancies and homeownership provides us that opportunity.
The larger impact of the housing downturn has been a dramatic fall in the nation’s homeownership rate. According to the Census Bureau report, the homeownership rate for the United States was 67.4 percent in the second quarter of this year, compared to 68.1 percent in the second quarter of 2008. During the housing expansion, homeownership rates had risen steadily to a peak of 69.1 percent in the first quarter of 2005 from a low of 63.7 percent in the first quarter of 1993. The nation’s homeownership rate has now dropped 1.7 percentage points since its 69.1 percent peak in 2005.
What is particularly troublesome is that the homeownership rate for blacks and Hispanics remain substantially lower than non-Hispanic whites and the gap is widening during this current downturn. The non-Hispanic white homeownership rate was 74.9 percent in the second quarter of 2009 compared to a 46.5 percent and 48.1 percent homeownership rate for blacks and Hispanics, respectively. Black homeownership rates have declined by 2.1 percentage points to 46.5 percent from 48.6 percent posted in the third quarter of 2006, while Hispanic homeownership rates have declined by 1.9 percentage points to 48.1 percent from 50.0 percent in the second quarter of 2006.
It is not surprising that homeownership rates are on the decline during the housing downturn. Mortgage credit remains very tight which keeps a disproportionate number of low income and minority households from obtaining home financing. The economic recession and mounting job losses are also inhibiting low income and minority household home buying. According to the National Association of Realtors, first time home buyers made up only 29 percent of total existing home sales in June. Under normal conditions, the first-time home buyer market share of home sales is generally around 40 percent.
The Census Bureau also reported that there continues to be an excess of vacant homes available for sale in the marketplace, exerting downward pressure on home values. The homeowner vacancy rate was 2.5 percent in the second quarter of this year, compared to 2.8 percent in the second quarter of 2008 and a cyclical low of 1.5 percent in the second quarter of 2000. The level of home vacancies continues to be historically high, but the year over year decrease in the nation’s vacancy rate to 2.5 percent from 2.8 percent was welcome news. The drop likely reflects the dramatic decrease in new residential construction during the past several years as well as a meaningful boost in foreclosure sales during the quarter.
The data clearly indicates that the housing downturn has taken its toll on national homeownership and homeowner vacancy rates. The pertinent question is how a housing recovery will impact these important measures of housing sector health. It is likely that the nation’s homeownership rate will hit a cyclical bottom sometime during the next several quarters due to a modest pick up in future home sales. However, there is nothing to suggest that the gap in homeownership rates between non-Hispanic whites and blacks/Hispanics will narrow anytime soon. The marketplace needs to create a number of responsible mortgage products designed to provide home financing to low income and minority households if the homeownership gap is to be narrowed during the recovery.
It is equally likely that a housing recovery will eventually decrease the number of vacant homes available for sale. As the recovery advances and home sales improve and foreclosure filings lessen, the supply of vacant homes is expected to fall, easing downward pressures on home values. Looking forward, we expect a housing recovery to help stabilize home values in those regions of the nation where homeowner vacancies do not pose a problem. However, it is likely that home values will continue to fall in those regions that are burdened with a serious excess of vacant homes, like California, Florida, Nevada, and Arizona.