The housing bust and Great Recession have changed the supply and demand landscape of the housing market. In the latest edition of Housing Insights, Fannie Mae’s Economic & Strategic Research Group documents key housing market changes using recently released data from the Census Bureau’s American Community Survey (ACS). The analysis finds that homeownership rates continue to decline, particularly among young households; that single-family housing is absorbing a disproportionate share of new rental demand; and that housing affordability problems are mounting among young renters while easing for young homeowners.
Half a decade after the onset of the housing downturn, the shift from homeownership to renting continues apace. In 2011, the homeownership rate fell by nearly a percentage point, the fourth consecutive annual decline. The 2011 homeownership rate of 64.6 percent was 2.6 percentage points lower than in 2007.1
Young households have experienced outsized homeownership declines. Households headed by those aged 25 to 34 years and 35 to 44 years led the drop in homeownership rates among all age groups during both the most recent year and the last four years (Exhibit 1). Homeownership rates for these young households have fallen roughly twice as much as the rate for the overall population.
As homeownership rates have fallen, single-family homes have absorbed much of the increase in rental demand. Single-family detached and attached units accounted for 34.1 percent of the renter-occupied housing stock in 2011, an increase of 2.4 percentage points since 2007. The increase in rental market share for single-family homes was much larger than for any other building type and came largely at the expense of small multifamily buildings.
Differing growth rates across building types have shifted composition of the rental market toward higher-cost units. Single-family homes and apartment buildings with 50 units or more – building types that captured market share in recent years – have average rents that are at least $100 per month greater than small multifamily buildings, which lost share (Exhibit 2).
The shift toward higher-cost rental housing, when combined with lagging renter income growth2, may be exacerbating rental affordability problems. The proportion of renters paying at least 30 percent of gross income for housing expenses – here used to define an “affordability problem” – increased between 2010 and 2011. Conversely, the share of homeowners with affordability problems declined by nearly a percentage point during the same period. The decline among owners was solely a result of improved affordability for households with mortgages, reflecting declines in mortgage rates to record lows.
Affordability problems have increased rapidly among the youngest renters. Between 2007 and 2011, the share of renters under age 25 who have affordability problems increased by 6.2 percentage points, and the share for renters aged 25 to 34 grew by 4 points. During the same period, the proportion of homeowners in these two age groups with affordability problems declined by 4.3 and 5.8 percentage points, respectively (Exhibit 3). In fact, the 2011 share of owners in these age groups with affordability problems was lower than in 2005, prior to the onset of the housing bust.
Director, Strategic Planning
Economic & Strategic Research Group
November 15, 2012
Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic & Strategic Research (ESR) group included in this commentary and related Housing Insights should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.
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1 Several Census Bureau surveys provide homeownership rate estimates. Although these surveys portray broadly similar trends, they differ in detail. The ACS provides the substantial advantage of a huge sample size, which affords more precise estimates of homeownership rates for sub-national geographies and demographic subgroups than do other surveys.
2 ACS data show that growth in renters’ median household income has lagged behind increases in median gross rent during every year since the onset of the Great Recession.