What recent homeownership data says about the housing recovery

August 4th, 2014

The homeownership rate doesn't account for individuals living in someone else's household, which skews the data.

Recently, the Commerce Department announced that homeownership rates hit a 19-year low in the second quarter of 2014, and economists have various interpretations of the data.

Reuters reported that industry analysts are pointing to strict lending standards and tepid wage growth. This is driving more consumers to rent, as vacancy rates for this market fell to their lowest levels in more than 19 years. The trend is particularly apparent among young adults.

Moreover, many college graduates are moving in with their parents, further driving homeownership rates down and constraining the housing recovery. In an article published in The New York Times, Jed Kolko, chief economist for Trulia, said this group and others living in someone else’s household are part of the reason why the homeownership data is misleading, as it only considers the renting and owning populations.

The rate of homeownership is measured as a ratio of homeowners to total households. If there were 10 households with five rental and five owner occupied properties, the rate would be 50 percent for each. However, if one owner and three renters move into another house, the homeownership rate actually goes up to 67 percent despite the loss of one owner because four of the remaining six households are owner occupied.