The U.S. homeownership rate rose up by 60 basis points in the third quarter last year up to 63.5 percent from its 51-year low of 62.9 percent in Q2.
By historical standards, the homeownership rate remains low (it peaked at 69.2 percent in mid-2004 right before the bubble). Hence, much of the talk in the industry these days is centered on how to raise the homeownership rate as a new administration is set to begin in just a few days.
One analysis doesn’t believe that the rate will increase, at least not in the near term. In fact, Arch Mortgage Insurance said in its Housing and Mortgage Market Review (HaMMR) for Winter 2017 that the homeownership rate “will continue to sag. The trend toward more high and low skilled jobs at the expense of the middle class will likely continue (one estimate is that the middle class has shrunk by 20 percent or more since 1970). This is primarily due to technological innovations and free trade. The other big factor is that most new households will consist of minorities, who historically have had lower homeownership rates.”
Mortgage rates rose to a two-year high at 4.32 percent at the end of 2016, causing many to believe that mortgages would be less affordable in 2017. However, not everyone shares Arch MI's sentiment that the homeownership rate will fall. In forecasting for 2017, Redfin Chief Economist Nela Richardson said she believes that more people will have access to mortgage credit this year and that mortgage rates will not get much higher than their current levels this year (in fact, the average 30-year FRM has dropped by 20 basis points in the last two weeks down to 4.12 percent).
One move Richardson said should improve access to mortgage loans is the GSEs raising the conforming loan limits for the first time in a decade.
“The loan limits insured by these companies will increase to $424,100 from $417,000 in most regions of the U.S. In expensive housing markets, the allowable loan size increases from $636,150 from $625,500,” Richardson said. “This change makes it easier for more homebuyers to qualify for a mortgage in high-priced markets.”
Also, after months of speculation, the Federal Housing Administration lowered its mortgage insurance premiums by 25 basis points down to 0.60 earlier this week, which may boost the homeownership rate this year—especially among first-time buyers.
The introduction of down payment programs requiring as little as 1 to 3 percent down by some of the largest lenders, such as JPMorgan Chase, Wells, Fargo, and Quicken Loans, may give the homeownership rate a lift, Richardson said, and may attract more millennial buyers.
Despite affordability pressures and an ongoing inventory shortage, Richardson said she believes that home sales will increase by 5.3 percent in 2017.
The U.S. Census Bureau will release its Housing Vacancies and Homeownership Rates report for Q4 2016 later this month.