Homeownership Rate Now Approaching 70 Percent

National Homeownership Month is an opportunity to reflect on the value of homeownership for America's families as well as review the strides we have collectively made to raise homeownership to record levels. Since 1994, the homeownership rate has risen from 64 percent to today's 68 percent, fueled by advances in new product development, technology that has reduced origination and servicing costs, a low interest-rate environment, and favorable demographic trends. These forces will remain at work and should enable the homeownership rate to inch up to 70 percent by the end of this decade.

A Nation of Homeowners…after 1940, that is…

While we may think of the United States as a nation of owners, this was not always the case. Between 1890 and 1940, the homeownership rate remained below 50 percent — the United States was a nation of renters, even though most families aspired to ownership. Federal housing policy in the 1930s and 1940s promoted ownership and a stable finance system by introducing FHA insurance (the VA guarantee product for veterans), and a variety of programs to stabilize and promote deposit gathering at savings institutions. The growth of the private mortgage insurance industry in the 1950s promoted low down payment conventional lending, and the post-World War II economic boom generated real income growth and low interest rates that enabled families to buy homes. The ownership rate climbed gradually from 55 percent in 1950 to 65.6 percent in 1980.

The 1980s and early 1990s were a challenging period for families who aspired to homeownership. Mortgage rates jumped to 18 percent in 1981 as the Federal Reserve tightened monetary policy to curb inflation, and remained in double digits for almost half of the ensuing decade. Unemployment reached 10 percent in 1982 — the highest level in more than 40 years. Then, it gradually declined to 5.2 percent, but went back up to 7.8 percent in 1992, curbing family income growth. In addition, the baby boomers were entering the housing market at a record clip, and young households historically have far lower ownership rates than established households. The national ownership rate fell after 1980 and remained mired near 64 percent through 1994, as shown in Exhibit 1.

70 Percent by 2010…

The rise in the national homeownership rate since 1994 was fueled by several factors. The longest economic expansion in U.S. economic history brought the unemployment rate below 4 percent, and low inflation enabled mortgage rates to reach levels not seen since the 1960s. New technology, such as Freddie Mac's Loan Prospector®, reduced origination and servicing costs and enabled the secondary market to design new purchase products with 3 percent or less in down payments on conventional loans — Freddie Mac's Affordable Gold 97® is an example.

Many of these forces will continue to drive homeownership gains over the balance of this decade. Further, as the aging baby boom generation moves into the peak-ownership years, they will help to push the national homeownership rate higher. Families where the head of household is at least 55 years old currently have ownership rates above 80 percent, which is about double the percentage of households where the head is under 35 years of age. Using projections prepared by the Joint Center for Housing Studies at Harvard University of the distribution of households by age and race/ethnicity in 2010, and assuming no change in owner rates within age and race/ethnicity categories from current levels, population aging would push the national homeownership rate up from today's 68 percent to 68.5 percent by 2010.

However, owner rates are likely to increase further over the balance of this decade because of low mortgage rates, further technological advances in underwriting and product design, and additional consumer credit education. While these factors improve ownership opportunities for all Americans, the gains have occurred disproportionately among minority families. As shown in Exhibit 2, the owner rates for African-American and Hispanic families increased by 13 percent and 17 percent, respectively, compared with 6 percent for white families. If the ownership gains between 2002 and 2010 by race and ethnicity are only half as strong as what has been experienced during the past eight years, then that will be sufficient to boost the national homeownership rate to 70 percent. And there is plenty of room for further increases in minority homeownership rates. Currently, owner rates for African-American and Hispanic families are below 50 percent, compared with 75 percent for white, non-Hispanic families.