Younger Americans Hardest Hit by Shifts in Homeownership and Housing Costs

While the Census Bureau has noted the decline in homeownership over the last few years, the latest edition of Fannie Mae's Housing Insights looks inside the figures.  Fannie Mae's economists found that the decline in the homeownership rate over the last four years has been particularly pronounced for young households and that single-family rental housing, with its high average rates, has absorbed a disproportionate share of new rental demand.

Five years after the start of the housing bust American households continue to shift from homeownership to being renters.   In 2011 the homeownership rate fell by 1 percent, the fourth consecutive annual decline and is now 64.6 percent compared to 67.2 percent in 2007.  This is the lowest rate recorded by the Census Bureau's American Community Survey (ACS) since it began in 2005.

Every age group except the 75 plus group experienced a decrease in homeownership in 2010 and 2011 and the two younger demographic groups which span ages 25 to 44 led the drop both in the recent year and the last four years.  These two groups have experienced declines more than twice the drop in the overall rate.

The ACS shows that single family housing has picked up much of the growing rental market.  Single family detached units accounted for 27.9 percent of occupied rental stock in 2011, up 0.5 percentage points since 2010 and 2.0 percentage points since 2007.  Some renters are former homeowners displaced by foreclosure.  As the market share of single-family homes increased, small multi-family buildings lost share even thought they have average rents at least $100 per month less than the single family units.

Previous research has shown that renter income growth lagged substantially behind rent gains between 2008 and 2010 and thus a larger proportion of renters have assumed housing costs that exceed the affordability level of 30 percent.  At the same time the proportion of homeowners with affordability problems has remained flat.  The 2010 ACS revealed further divergence in affordability between renters and owners.  The proportion of renters paying at least 30 percent of their income for housing increased between 2010 and 2011 although not as fast as in preceding years while the percentage of homeowners with affordability problems decreased by nearly a percentage point as mortgage interest rates declined to record lows.  Taken together, the proportion of all households with affordability issues declined slightly between 2010 and 2011.

Again it is younger households that are bearing the brunt of these changes.  Between 2007 and 2011 the share of renters under the age of 25 with housing costs burdens increased by 6.2 percentage points and that for renters 25 to 35 went up 4 points.  Homeowners in these same two age groups had fewer affordability problem and the two groups combined had affordability problems at a rate lower than in 2005.  This large decline among homeowners was not enough to offset the increases among the rental population so there was an increase in the share of all households in those age groups with affordability issues.

One encouraging finding for renters is that affordability problems did not worsen in 2011 for occupants of single family rentals or apartment buildings with at least 50 units, the fastest growing rental market segments.  After rising in 2009 and 2010, housing cost burdens for occupants of these housing types were flat in 2011.