The nation’s homeownership rate, which has dropped sharply for years, could be at a turning point.
It hit 63.5% in the third quarter, the Census Bureau said Thursday. That is a significant jump from the prior quarter, when it hit 62.9%, the lowest point in 51 years.
There were other reasons for optimism in Thursday’s release. About 1.1 million households formed in the third quarter, a significant jump from about 944,000 in the prior quarter.
More crucially, about half of the new households formed were owners, rather than renters. About 560,000 new owner households were formed this quarter, up from a roughly 22,000 decline in the second quarter. In order for the homeownership rate to rise, more owners need to form households than renters.
“For me the big reason to be optimistic is looking at household formation,” said Ralph McLaughlin, chief economist at Trulia.
The persistently low homeownership rate has been one of the most troubling aspects of the recovery. Home prices are back within 0.1% of the July 2006 peak, according to S&P CoreLogic Case-Shiller Indices, driven by a lack of inventory and low interest rates. Nonetheless, young people are still struggling to afford houses due to tight mortgage credit, difficulty saving for a down payment and a lack of starter-home availability.
Several other signs point to improvement on that front. The share of first-time buyers rose to 34% in September, the highest since July 2012, according to the National Association of Realtors. A recently released Zillow survey conducted this spring found that half of home buyers who bought in the prior year were under 36 years old.
The rental market has also begun to soften lately, which could indicate that skyrocketing rents have helped push more households to buy.
To be sure, there are reasons for caution. The homeownership rate is still lower than it was a year ago, when it sat at 63.7% compared with 63.5% today. Seasonally adjusted, the change in the homeownership rate to 63.4% from 63.1% in the prior quarter isn’t considered statistically significant.
The homeownership rate began dropping sharply in 2006 and has been on a downward slope since then. “When you have something that has essentially been in decline for 10 years, one quarter isn’t enough to tell me that we are even stabilizing,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank.
Still, some economists said they are optimistic this represents a turning point.
“I think the long slide, which began with the housing bust back 10 years ago, is over,” said Mark Zandi, chief economist at Moody’s Analytics.
Still, he added, it’s going to take a while for the homeownership rate to come back up to normal.