Monday, February 13, 2012

Homeownership in Colorado and Metro Denver: Year-end 2011

The homeownership rate declined in the United States from the fourth quarter of 2010 to the fourth quarter of 2011. During the same period, the homeownership also declined in Colorado and in the Denver-Aurora metro area.

According to data released on January 31 by the Census Bureau, the national homeownership rate declined from 66.5 percent during the 4th quarter of 2010 to 66.0 percent during the fourth quarter of 2011. During the same period, the homeownership rate in Colorado fell from 68.2 percent to 64.9 percent. In the Denver-Aurora area, the rate fell from 65.2 percent to 62.9 percent during the same period.

The latest data is based not on the decennial census, but on quarterly estimates made using data from the Current Population Survey. Quarterly data at the state and metro level, using current methods, are only available since 2005. Extrapolating from several different homeownership measures, it looks like homeownership peaked near 72 percent in Colorado in 2003 and has been slowly declining since.

The first graph shows the homeownership rates for the United States and Colorado since 2005. For most of the seven years covered in the graph, the homeownership rate in Colorado is higher than the national rate. During the first quarter of 2010 and the fourth quarter of 2011, however, the Colorado rate dipped below the national rate. While this does not yet establish a trend, it does show a significant drop in the Colorado rate compared to the national rate.

The relative drop in the homeownership rate could be due to several factors. A decline in homeownership could be due to weakening wages and household wealth, which has led to more mortgage delinquency and more foreclosure. However, recent mortgage delinquency data from the Mortgage Bankers Association and the LPS Mortgage Monitor suggests that Colorado is actually performing better than most of the nation on mortgage delinquencies.

The more likely option would be that new household formation has been robust in Colorado while new home purchase activity has not been robust. The addition of a large number of new renter households at the same time that home purchases decline could lead to a fairly swift decline in the homeownership rate. We do know that household formation has continued at surprisingly high levels in spite of weak job growth with more than 20,000 new household per year in recent years. At the same time, we know that home purchase activity continues to decline as a rate of 1 to 3 percent year over year. We also know that population growth through in-migration added another 30,000 people to the state during 2010.

In short, foreclosure activity has been falling in the state, but new household formation and in-migration has added a significant number of new persons and households. This will push down the homeownership rate if home purchase activity declines.

The second graph shows the Denver-Aurora homeownership rate compared to the state overall. Here we see that the homeownership rate in the Denver-Aurora area is now lower than the state overall. This is expected given that rental housing tends to be much more common in Denver and in Aurora than in most other Colorado cities and metro areas. As new rental housing is added and as new younger households form in the metro area, the overall homeownership rate will continue to decline.

This is not to say that foreclosures do not have a role in the decline of homeownership in Colorado and its metro areas. Since 2007, more than 100,000 homes have been sold at foreclosure auction and the homeownership rate has dropped by almost seven percentage points. Nevertheless, the drop in the homeownership rate appears to have accelerated in recent quarters while the foreclosure rate has moderated. This suggests that the addition of new renter households is contributing significantly to the decline in the homeownership.