Homeownership Rate Climbs, Vacancy Rate Declines

Today, the US Census Bureau released its quarterly Housing Vacancies and Homeownership data. Headlining that report was data that showed that the homeownership rate jumped to the highest level since 2013 at 65.1% as household formations remain strong. Consistent with the demographic trends we've discussed, we forecast a steady uptick in the homeownership rate over the next decade as millennials - the largest generation in American history - begin to enter "ownership age." The <35 year-old ownership rate climbed to the highest since 2011 at 37.6%

Gains in the homeownership rate, however, did not come at the expense of the rental markets. Housing markets remain historically tight as the vacancy rate for both rental and owner-occupied units remains at or near 40-year lows. The rental vacancy ticked lower to at 6.4% in the fourth quarter, the lowest level since 1985. The homeowner vacancy rate, meanwhile, remained steady at 1.4%, barely above the 1.3% rate recorded in 2Q19, which was the lowest homeowner vacancy rate since 1981.

Instead, gains in the homeownership rate came as a result of gains in total household formations. Total household formations rose by 1.3% in 2019 after recording 1.7% growth in 2018, which represented the strongest year for formations since 1985. Given the abnormally large 5-year cohort of 25-29 year-olds, we think that the household formation rate will see continued gradual increases over the next five years as this "mini-generation" enters prime first-time homebuying age. There are roughly 20 million more U.S. households at the end of 2019 as there were at the start of 2000. 

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