Tuesday, January 29, 2008

Homeownership Rate: Cliff Diving

by Bill McBride on 1/29/2008 10:42:00 AM

The Census Bureau reports that the homeownership rate declined to 67.8% in Q4, from 68.2% in Q3 2007.

Homeownership Rate Click on graph for larger image.

The homeownership rate has plunged back to the levels of the summer of 2001. Note: graph starts at 60% to better show the change.

This is a huge drag on the U.S. housing market. I'll have more on this later today.

The homeownership vacancy rate increased slight to a record 2.8% (from 2.7% in Q3).

Homeownership Vacancy Rate
The second graph shows the homeowner vacancy rate since 1956. A normal rate for recent years appears to be about 1.7%. There is some noise in the series, quarter to quarter, but it does appear the vacancy rate has stabilized.

This leaves the homeowner vacancy rate about 1% above normal, or about 825 thousand excess homes.

The rental vacancy rate declined to 9.6% in Q4, from 9.8% in Q3. The rental vacancy rate has been trending down slightly for almost 3 years (with some noise). This was due to a decline in the total number of rental units in 2004, and more recently due to more households choosing renting over owning.

Rental Vacancy Rate

It's hard to define a "normal" rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8%. This would suggest there are about 560 thousand excess rental units in the U.S. that need to be absorbed.

There are also approximately 250K excess new homes above the normal inventory level (for home builders).

This suggests there are about 1.65 million excess housing units in the U.S. that need to be worked off over the next few years. These excess units will keep pressure on housing starts and prices for some time.