Let’s first talk about household formation. I have a simple model (even more appropriate before Valentine’s Day). My American housing demographic model shows that Americans:
- Rent
- Date
- Mate
- Get married
- 3.5 years after marriage, we have kids and dual-income households buy bigger homes to live in.
After reviewing today’s Census data, everything seems on track to me. One-third of the nation will remain lifelong renters unless they get married and have a dual-income household. However, millennials have been the largest group of homebuyers for over 10 years. Like previous generations, when they start forming households, those with a good income tend to purchase homes.
However, if home prices hadn’t skyrocketed alongside mortgage rates, we would have more younger homebuyers entering the market and we would have a slightly higher homeownership rate than today’s 65.7% number.
From Census: The homeownership rate of 65.7 percent was virtually the same as the rate in the fourth quarter 2023 (65.7 percent) and not statistically different from the rate in the third quarter 2024 (65.6 percent).
My housing economic model started in 2010 and I separated my work into two different timelines. One was from 2008-2019 and the other was from 2020-2024. Early in the last decade, I made a bold and somewhat controversial prediction: the homeownership rate would drop to between 62.2%-62.7%. I was off by 0.2%, and the lowest we got was 62.9% in Q2 of 2016.
I’d like to explain the reasoning behind this forecast, as it highlights the changing landscape of homeownership during that time, influenced by several key variables.
Demographic trends shifted
First and foremost, demographic trends were shifting dramatically. Our population was too young or old to actively participate in the home-buying market actively, tilting the scale toward renting instead. Additionally, a staggering 10 million plus homeowners struggled with mortgage delinquencies. For many, losing their homes meant transitioning into the rental market, further contributing to this shift from homeowner to renter.
The demand of the housing bubble years was unsustainable
Lastly, while we saw a surge in homeownership and purchase applications during the housing bubble years, this level of demand was unsustainable. The massive credit and sales boom during the housing bubble years simply couldn’t sustain itself. To keep it short and sweet: The housing bubble years inflated the data. The weaker demographics for homeownership and the disappearance of exotic loan options meant that the market couldn’t maintain such high numbers for long.
In essence, this was a time of significant change, where the realities of the housing market were reshaping what the percent of homeownership would look like.
How we grew homeownership
Before this decade, some pundits said that expecting ownership to stay at 62.2% was too bullish and that the homeownership rates were destined to go lower. But I disagree and in the last decade, I made another controversial call, saying the homeownership rate can get back to 66.21% at some point between 2022-2026.
These were my variables written in 2019, which still hold up today:
1. The median age for first-time homebuyers is now 32, and the number of Americans aged 25-31 is massive. Millennials are still the highest percentage of homebuyers in America, and they mostly go from renting to home-buying, even though the older ones are buying their second homes now.
2. Boomers are staying in their homes longer, so remaining homeowners.Housing tenure doubled in America from five to seven years from 1985-2007 to 11-13 years from 2008-2025. This leaves a lot of homeowners in place.
3. The loan profile of buyers during the post-2010 expansion is excellent. When the next job loss recession happens, we won’t lose as many homeowners (compared to what occurred after the Great Recession).
As you can see below, these charts prove that we weren’t going to lose homeowners in scale terms as we did after 2008. Foreclosures and delinquency were a net negative for the homeownership data. from 2008-2016.
Whenever the next job loss recession happens, we will see an increase in delinquencies but nothing like what we saw in 2008.
The trend looks right
This latest homeownership report reflects the trends we are seeing and everything is on track. The highest percentage of homeowner data we recently received was 66% in Q3 of 2023. I do not include the spike in data during the COVID-19 pandemic, as that period was unreliable for tracking this information.
Since 2020, the drastic increase in home prices and mortgage rates approaching 8% made it even more challenging for younger buyers to enter the housing market. If home prices and rates had been more stable between 2020 and 2024, we would have already reached our target of 66.21%. However, life often presents unexpected challenges. We are still close to our target of 66.21%, and I have two years left to achieve it.
