U.S. homeownership is expected to fall a total of eight percentage points by 2015 from levels recorded in 2005, according to an analysis by John Burns Real Estate Consulting.
The firm noted that the homeownership rate peaked at roughly 70 percent in 2005, but will make its way down to 62 percent by 2015. And it could fall even more after that.
The biggest driver of the decline will be continued foreclosures and short sales, which will displace a large number of homeowners and push the homeownership rate down 5.6 percent.
In short, we’re seeing former homeowners become renters, and banks and investors become landlords. This could be become the new normal.
The sluggish economy will also add to the housing market’s woes, as the ability to form households will slump thanks to poor consumer confidence and tighter than normal mortgage credit conditions.
Yes, banks and mortgage lenders have toughened up and don’t allow everyone to buy a house anymore. You actually have to qualify again!
[What mortgage lenders look for?]
These cyclical trends are expected to dent homeownership by 3.0 percent.
However, these trends will be partially offset (+0.7%) by an aging population, whose propensity to purchase a home as they age increases until they reach their 70s.
This drop in homeownership again supports the argument to buy rental property now, as we’ll be a nation of renters for the foreseeable future. It could be a great time to snag an investment property on the cheap with a low mortgage rate to boot.
2025 Can’t Come Soon Enough
Of course, it’s only a matter of time before the homeownership rate battles back to previous levels.
John Burns sees homeownership returning to 67.1 percent by 2025, with 70 percent of those previously foreclosed on becoming home buyers again. That’s pretty impressive.
Additionally, a better economic climate should improve access to mortgage credit, which will boost homeownership, though you shouldn’t expect 100% financing and stated income loans to return this time around.
Banks and lenders will probably take a more prudent approach, though only time will tell what bombshell will develop in the future.
The firm also expects mortgage rates to rise to between 6-7% over time, and home prices should rise at approximately the same rate as incomes.
So it’s certainly a good time to consider buying a home if you’re in it for the long haul. Just be patient and know that trying to time the absolute bottom of the housing market is nearly impossible.
Also note that making your move while all the doom and gloom is out there is probably the best time to buy because by the time the good news surfaces, you’ll have missed your golden opportunity.
Read more: Six things holding renters back from becoming homeowners.
I’m a bit confused in “This drop in homeownership again supports the argument to buy rental property now….”, funny to suggest buying rental property when people are losing their homes and having trouble getting loans.
With homeownership expected to fall, the pool of renters will increase. And that demand will also push rents higher, making it more attractive to buy an investment property. But as mentioned, don’t expect a quick turnaround in the housing market.
The problem is the ‘buy an investment property’. Homeownership is declining because people have no money. If people can’t keep their homes and let alone buy homes due to loan restrictions, what makes you think people will buy homes to rent out?
Not everyone can buy a home. But those who can may want to think about the idea of buying an investment property with renters and rents on the rise.