The Decline in Homeownership

The homeownership rate fell again in the second quarter of 2016, hitting the lowest rate in more than 50 years, more than 6 full percentage points below the peak bubble years. This is both good news and bad news.

It is good news because homeownership is not always good for everyone at all points in their lives. The building, banking and real estate industry have worked hard to make renting seem un-American. While homeownership can be a useful way for families to accumulate wealth, it’s not generally advisable for people not in a stable employment and family situation.

The transaction costs associated with buying and selling a home are roughly 10 percent of the sales price, which comes to almost $25,000 for a typical home. This is a lot of money to throw away for someone who has to move after a year or two because of losing a job or a family break-up. Of course the lost money to the homeowner is income for bankers and realtors.

The other reason it might be a good thing to see a declining homeownership rate is that it seems some markets are again rising into bubble territory. The bottom third by sales price of homes in Miami saw a 55.6 percent price increase over the last three years. By contrast, rents have risen just 10.4 percent. In Chicago the price of the bottom third of homes increased by 40.7 percent in the last three years, while rents rose by 6.9 percent.

There are several other cities in which prices in the less expensive segment of the market are rising precipitously. It would be a good thing if moderate income families didn’t buy into bubble inflated markets yet again.

The bad side is: The main reason people are not buying homes does not have to do with them having better insight into the nature of the housing market. According to the Census Bureau, earnings for the median male worker still have not recovered to their pre-recession level, while earnings for women are just trivially higher more than seven years later. Furthermore, the employment rate for prime age workers (ages 25 to 54) is still down by almost three percentage points from the pre-recession level.

If families were deciding that it was better to put their money elsewhere rather than buy a home we would be seeing more rapid growth in their holdings of other financial assets. We in fact see the opposite. The Federal Reserve Board’s 2013 Survey of Consumer Finance, the most recent one available, shows that assets outside of housing are down sharply from pre-recession levels for all age brackets. Clearly people are not opting to put their money elsewhere; they just don’t have the money.

This is clearly a bad story. It’s made worse by the fact that the biggest drops in homeownership are for African-Americans, who are again being hardest hit by a weak economy. It will be good if families can make informed decisions between renting and owning, but it will be even better when more of them actually have this choice.

This column originally ran in The New York Times.

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC.