Early in the previous economic cycle, one of the more controversial calls I made was that the homeownership rate would bottom at 62.2% – 62.7% in this cycle (2008 – 2019). This prediction, which was looked at as being very bearish but 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 homeowners were delinquent on their mortgages, and once they lost their home titles would join the ranks of renters. Third, home-ownership and purchase applications were too high and could not be sustained at the Housing bubble level with the weaker demographics for homeownership and no exotic loans to boost demand. We got as low as 62.9% in the previous cycle. We did a tad better than what I was looking for.
In the last few years, some pundits have been saying that expecting ownership to stay at 62.2% was too bullish. I have been talking about the years 2020-2024, being suitable for housing for many years now. I believe the replacement home buyer factor kicks in more in the years 2020-2024. This is the timeline that we would see 1.5 million in housing starts, and the purchase application index will break over 300. Today, we just hit 65.3% in the Homeownership rate in 2020.
“The homeownership rate of 65.3 percent was higher than the rate in the first quarter 2019 (64.2 percent) but not statistically different from the rate in the fourth quarter 2019 (65.1 percent)”
Last year I made another controversial forecast. I believe the homeownership rate can get back to 66.21% at some point in the years 2022-2026. Some people thought that couldn’t happen because of the housing affordability and student loan crisis in America, that college-educated Americans that finish college are too poor to buy homes.
The State Of Homeownership In America
These were the main factors for that call updated for 2020. This thesis is based on BC Data.
1. The median age for first time home buyers is now 33, and the number of Americans in the range of 26-32 years is massive.
2. Boomers are staying in their homes longer so remaining homeowners,
3. The loan profile of buyers during the post-2010 expansion is excellent, so when the next job loss recession happens, we won’t lose as many homeowners (compared to what occurred after the Great Recession).
A 66.21% rate in homeownership would get us back to the level we had in 1997, so it is not such as stretch.
Now we have this virus in play, and I recently talked about the foreclosure issue that will hit America in 2021 due to over 26,500,000 Americans losing their jobs in less than 6 weeks.
We are in the early stages of seeing what the government’s response is for this crisis. At some point in the future, the forbearance programs will end, and we will see what the outcome of that more in 2021. What the virus can’t kill is the most significant housing demographic patch ever recorded in our history. As long as mortgage rates stay low, below 4.5%, the housing thesis will work after we defeat this demon of the devil.
However, we have a lot of work to do to get from the A.D. (After The Disease) stage to the AB (America is Back) stage. Even after we reopen the economy, don’t assume it will be a fast recovery to the BC stage of January and February of 2020. The B.C. data of 2020 had cycle highs in demand for both existing and new home sales. We had cycle highs in demand with purchase application data showing double-digit year over year growth all the way up to March 18th. Housing starts had near 40% year over year growth in February of 2020. The only unhealthy data line we had was the NAR median sales price grew at 8% year over year, which is way too hot.
Yes, a lot of work ahead of us, but one thing that we Americans have shown since 1790 is that the American bears talk a lot of economic trash about our country, but they have all failed since 1790.
“The human mind is a fearful instrument of adaptation, and in nothing is this more clearly shown than in its mysterious powers of resilience, self-protection, and self-healing. Unless an event completely shatters the order of one’s life, the mind, if it has youth and health and time enough, accepts the inevitable and gets itself ready for the next happening…” ― Thomas Wolfe, You Can’t Go Home Again ―
Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan 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 Facebook page https://www.facebook.com/Logan.Mohtashami and is a contributor for HousingWire.