Homeownership Up In America


Early in this economic cycle,  one of the more controversial call I made was that the home ownership rate would bottom at 62.2% – 62.7% in this cycle (2008 – 2019).  This prediction was based on three facts: First, demographics during this period supported renting not home buying.  Our demographics were either too young or too old to be in the market to purchase homes.  Second, over 8 million home owners were delinquent on their mortgages and once they lost their home titles would join the ranks of renters – and third, we had a highly elevated level in home-ownership and purchase applications which could not be sustained into a weaker demographic patch for housing that had no more exotic loans to boost demand.

In the last two years some pundits were saying that the 62.2% level of home ownership was too bullish. Today we are 2 years away from the end of this cycle call  and home ownership rate have not gone below 62.2% .  The lowest percentage we have seen so far was  62.9%.

From the data below it appears that  home ownership levels have bottomed and is slowly creeping up from multi decade lows.

From Census:

Q4 2017 homeownership rate was 64.2%, not statistically different from Q4 2016.

Home ownership

As you can see from the chart below,  purchase applications rose with home ownership rates and peaked in 2005 of the last cycle. Even in this cycle when we have over 154,000,000 people working, mortgage rates at the lowest interest rates ever in U.S. history, and we are on pace to have the longest economic expansion on record with the longest job expansion on record, purchase applications are only at 1998 levels. If you took away the historical levels of cash buyers in this cycle, you simply don’t  have enough mortgage buyers to warrant a real unit sales recovery from 2008-2019.

From Calculated Risk

From Doug Short:
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Don’t look for much help from new home sales. This has been the weakest new home sales recovery ever recorded in U.S. history–which also means we have legs to run higher for sales and housing starts.

From Doug Short:



The biggest housing story in America today is that the tenure of housing has basically doubled in this cycle. If you want to see why demand isn’t higher look at household formation (low) , demographics (population is too young and too old) and affordability (too expensive). Folks are staying in their homes instead of moving up.  The tenure of housing could be the biggest housing economic story of our lifetime and it hardly gets any attention.


A quick note on mortgage rates and 2018 Spring demand: Even if mortgage purchase application data shows no growth in year over year demand in 2018,  growth is better than in 2014 when rates were falling and inventory was higher. During that time,  sales were negative, year over year for existing home sales and new home sales had its biggest miss every in U.S. history.  I would keep an eye out of the purchase application data over the next 60 days to get an idea how 2018 will look.

Today we have about 600,000 more homes sales since 2014 and purchase applications are higher now compared to then.  If you hear a lot of bearish talk on housing because rates are higher, keep that in mind. The big demographic push for housing is still a few years away which is unlike 2005 where prime age labor force growth was about to peak.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

15 thoughts

  1. You seem to have a knack for making accurate market predictions.

    Can you give me some idea when U.S. housing prices going to hit a peak – and how much will they decline during the correction?

    Thank you

    Robert Campbell
    San Diego, CA

    1. You need higher supply of homes, it might take a job loss recession for that to happen. The only times we had 6 months of supply in terms of annual months was from 2006-2011. We haven’t even broken above 5 months yet. The highest supply post 2012 came in 2014 when we got as high as 5.8 months in of the months of out the year, that is it. Unlike 2007 where prime age labor force growth peaked we are running into a better demographic patch. Unemployment claims rising above 323K would be your first indicator of possible distress supply coming on line soon from late cycle buyers who don’t have big down payments. Outside of that the rest have decent equity protection against forced distress selling.

  2. Can you give me a better prediction about when U.S. home prices will peak?

    If they rolled over right now – for whatever reason – how far do you think prices would fall during the downturn?

    Most of us already know that if we enter a recession and/or if home buyer demand falls and the supply of homes for sale rises to over 6 months, the bull side of this housing cycle will end.

    1. They don’t just roll over for any reason, series of variables that change over any year that go into that equation. For example, the city of Houston went into a recession as oil prices crashed but inventory rose and home prices didn’t go negative they just cooled down the rate of growth. No over investment thesis in this housing cycle because total housing starts are only 1,200,000 unlike the previous cycle.

  3. So if the cycle happened to peak out right now (for whatever the reason), because new home building permit activity has been sub-par for the past 5 years, you think that a sizable price correction in U.S. housing prices is unlikely.

    Is that what you’re saying?

    1. Yes, because the supply chain is limited due to the better demographics coming up and real affordability isn’t as bad as nominal affordability for home buyers because rates are still 1.5% lower than the previous cycle. This is why household formation is getting better on the owner occupied side now rather than renting the last few quarters. Home sales are at cycle highs, we don’t have a demand problem in terms of adding too much supply to drive prices lower. The question going out is what will the housing cycle look like with better demographics which is coming vs affordability when rates don’t make their 2% lower dive which has happened in every cycle.

      My lack of mortgage buyer thesis is only from 2008-2019. We are in 2018 now, the demographic turnover is going to be positive soon as ages 21-27 are the single biggest group in America today. So the variable rate of change of supply has to be looked at in a more sophisticated model. This cycle the extremes bulls and bears missed it because they were using an old reversion to the mean model to try to call for peaks and rate of growth and higher estimates of sales + starts when demographics was the biggest story from 2008-2019. You can see this in a lot people’s work because they were way to optimistic on unit sales and starts and they were too pessimistic on price gains. It’s a very complex discussion just like how macro economics is in a aging demographic century with the rate of growth of productivity slowing down too. Part of the issue is that housing is terribly boring in this cycle and it wasn’t in the last so headline sensalism had to kick into over drive when there wasn’t too much to say.

  4. “Home sales are at cycle highs, we don’t have a demand problem in terms of adding too much supply to drive prices lower. ”

    What if mortgage rates rise to 6%? What kind of an impact do you predict would that have on home buyer demand?

    1. 6% Mortgage rate would mean 5% 10 year yield, that isn’t in the works anytime soon with CPI and PCE for inflation under 2%. 36 year down trend on the 10 year yield that hasn’t snapped to the reversal even with PMI world data being as hot as it is. That is something that could happen in the future years. However, real affordabity gets hurt badly at 5.875% with where real home prices where they’re at

  5. I’m just asking “what if” mortgage rates went to 6.0%. I’m not saying they will. I just enjoying getting into the minds of individuals like yourself who are smart.

    It seems you place a lot of emphasis on demographics – which I am only generally familiar with. For example, I’m a baby boomer. 🙂

    Do you think you can make intelligent value investments – i.e. “buy when housing prices are cheap – and sell them back when they are high” based upon demographic changes?

    For example, did your demographic model tell you to buy in 1996 and sell in 2006 – and then buy again in 2012 when prices were low and price appreciation could be anticipated?

    In case you haven’t guessed, I like being a “value” investor, just like Warren Buffett – who buys when values are low, and sometimes sells when they are high.

    1. Prime age labor force growth peaked in 2007, demographics for housing was good from 1996-2005 and that runs with the purchase application data as well. I believe you’re looking at housing as an investor and I am looking at it as a data analyst. These are two different worlds when talking about housing.

    1. Inventory broke under 6 months nationally, typically when that is the case pricing power comes back to housing. Purchase application actually went lower in 2014 and adjusting to population it was the lowest levels ever for the data line but inventory never broke over 6 months.

  6. You focus on a key indicator to watch: months of supply of housing for sale.

    So what you are saying is that demographics didn’t have much to do with the 2012 turning point in the market, correct?

    1. No, this is why purchase application data has been soft from 2012-2018. Still at 1998 levels today. What is different in this cycle is that you had historical cash buyers 2X the norm as a % of sales early on. Even today in 2017 total % of cash buyers is double the historical norms. 2008-2019 is demographically light for housing, you’re very old and very young in scale terms. This is why most of the household formation has been for renting in this cycle. However, now its 2018 so you can see the turn shift from renting to owner occupied and rent inflation has been fading from the peak.

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