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Why fewer homeowners?

Mortgage rates have crept a bit higher, but by historical standards borrowing to buy a home is quite a bargain, as it has been since before the recession. So, with the recovery well underway, more and more people are opting for homeownership, right?

Not so. In fact, the U.S. homeownership rate in the first quarter of 2015 fell to 63.7 percent—the lowest level in more than two decades.

The trend of declining homeownership is not new—it began some eight years ago—but the fact it has not abated with the strengthening economy is striking.

What explains the falling rate of homeownership? A new study from the Joint Center for Housing Studies of Harvard University identifies several factors behind this trend.

One is the erosion of household incomes since the start of the recession in 2007. Low mortgage rates are no help to someone who simply cannot afford to buy a home.

Another factor is restricted access to financing. “Facing heightened costs from delinquent loans, lenders are reluctant to lend to borrowers with less than stellar credit,” the researchers state.

The report also notes what it terms the slow transition to homeownership by the millennial generation. This, in part, could be a matter of choice, but the researchers say this generation also faces financial hurdles.

Rochester long has been known for its housing affordability compared with other metro areas. Yet the rate of homeownership also has fallen here, from 69.4 percent in 2006 to 66.7 percent in 2013.

The Harvard report says there is a flip side of falling demand for owner-occupied housing—“exceptionally strong” demand for rental units. That has caused rents to rise much more sharply than the inflation rate.

The impact has been felt here. Measured by median gross rent as a percentage of household income, Rochester is less affordable for renters than places like Los Angeles, New York City and Washington, D.C. 

To grow the local economy, housing affordability is vitally important. It’s not an easy problem to fix, but we certainly should try.

7/3/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

One comment

  1. Claire Chiasson-Tyler

    No one is talking about the fact that homeownership equates to having steady income. Jobs have become increasingly uncertain. Having a job today doesn’t mean you’ll have one in 5 years – or even 6 months.

    So when do you feel comfortable enough to actually buy a house? After 1 year with an employer? 2 years? 5 years?

    The article presumes that people (especially Millennials) should WANT to own a home.

    But when I talk to them I tell them:
    – Owning a house restricts you to a geographic area. If you are laid off, are you confident that you can find another job that is 1) in that area, 2) suitable to your current skills, and 3) comparable in pay? If not, maybe renting is the way to go – makes relocation much easier.

    – It’s not the investment opportunity it used to be. Houses just don’t appreciate like they once did.

    – It’s a LOT of hard work. Lots of people (all ages) don’t want to spend their limited free time mowing the lawn, painting, and generally maintaining the house.

    I sold my house a year ago (I’m in my 40s). I am realistic about my long-term prospects, and I’d have to relocate if I was laid off. And I’m really enjoying the freedom of calling the property manager when there’s an issue!

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