Thursday, November 1, 2012

Census: Homeownership rate down to 66.6 percent during the third quarter

The homeownership rate declined in the United States from the third quarter of 2011 to the third quarter of 2012. During the same period, the homeownership rate also declined in Colorado and in the Denver-Aurora metro area.

According to data released today by the Census Bureau, the national homeownership rate declined from  66.3 percent during the 3rd quarter of 2011 to 65.5 percent during the third quarter of 2012. During the same period, the homeownership rate in Colorado fell from 67.6 percent to 66.6 percent. In the Denver-Aurora area, the rate fell from 63.9 percent to 61.8 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. (See here for most recent annual data.)

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, and the first half of 2012, however, the Colorado rate dipped below the national rate. While this does not necessarily establish a trend, it does show a significant drop in the Colorado rate compared to the national rate.As of the third quarter of 2012, the Colorado homeownership rate has again moved above 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 20,000-30,000 new household per year in recent years. At the same time, home purchase activity, while growing, is still well below what it was prior to 2008.

Naturally, the Denver-Aurora area, since it has more rental housing in general than the more strictly rural and suburban areas, shows a lower homeownership rate than either the state overall or the U.S. The Denver-Aurora rate has hit a seven-year low during the third quarter as new apartment construction continues at robust levels in central Denver, and along the Boulder turnpike and at light rail stops.

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. The fact that many of these new households are moving toward rental housing instead of purchase housing will continue to put downward pressure on the homeownership rate.