Homeownership rate to hold steady in 2021 - Capital Economics
US Housing

Homeownership rate to hold steady in 2021

US Housing Market Update
Written by Matthew Pointon

An improvement in the share of in-person interviews in the fourth quarter HVS survey helped bring the homeownership rate back down from its recent implausible highs. And, with home sales set to slow this year, we expect it will stay close to 65.5% over the next year. Meanwhile the counter-intuitive surge in median asking rents looks to reflect the movement of wealthy households out of cities. As that trend begins to reverse this year, we expect median asking rents will fall back from $1,200 to around $1,000.

  • An improvement in the share of in-person interviews in the fourth quarter HVS survey helped bring the homeownership rate back down from its recent implausible highs. And, with home sales set to slow this year, we expect it will stay close to 65.5% over the next year. Meanwhile the counter-intuitive surge in median asking rents looks to reflect the movement of wealthy households out of cities. As that trend begins to reverse this year, we expect median asking rents will fall back from $1,200 to around $1,000.
  • The fourth quarter Housing Vacancies and Homeownership (HVS) survey once again suffered from reliability issues due to the impact of COVID-19. Renewed lockdowns late last year meant that in-person interviews dropped from 100% in October to 84% by December. As a result, owners of vacant homes, and renters, would have been harder to contact and are likely to have been undercounted. (See Update.)
  • That would, in turn, lead to an upwardly biased homeownership rate. That said, the relatively high level of in-person interviews compared to the second and third quarters helped bring the seasonally adjusted homeownership rate down from an implausibly high 68.1% in the second quarter to a more reasonable 65.6% in the fourth. (See Chart 1.) And, with home sales set to fall back toward their previous trend and foreclosures due to restart later in 2021, we expect the homeownership rate will more-or-less hold steady at around 65.5% over the next year.
  • The survey also showed that median asking rents were up 18.4% y/y in the fourth quarter, while median asking prices were down 5.4%. (See Chart 2.) That stands in stark contrast to other data, which have shown falling rental growth and surging house prices. That discrepancy may reflect sampling issues, but we also suspect it is a consequence of relatively wealthy households leaving cities during the pandemic.
  • That would lead to a rise in the share of expensive apartments on the market, boosting median asking rents. The share of apartments on the market with an asking rent of over $2,000 rose to a record high 26.3% in the third quarter. It is likely those households then bought a relatively expensive home. Indeed, the median sale price of existing homes surged 18% between January and October last year. As those pricey properties were removed from the market, that would lead to an apparent fall in median asking prices.
  • As vaccines are rolled out, we expect the move away from cities will start to reverse this year. After all, most firms will require their employees to come into the office at least one or two days a week, and the reopening of restaurants and entertainment, combined with cut-price rents, will attract households back. That will show up as a reversal of recent trends in median sold prices, and median asking rents and prices. Indeed, there are early signs that is now happening. The share of apartments on the market for over $2,000 declined to 23.8% in the fourth quarter, and median sold prices dropped to a five-month low in December.

Chart 1: Homeownership Rate (%)

Chart 2: Median Asking Rents & Prices (% y/y)

Source: Census Bureau

Source: Census Bureau


Matthew Pointon, Senior Property Economist, matthew.pointon@capitaleconomics.com