Homeownership Rate Likely to Continue Falling: Capital Economics

For the first quarter of 2012, the ""Census Bureau reported"":http://www.census.gov/hhes/www/housing/hvs/qtr112/files/q112press.pdf the homeownership rate dropped to 65.4 percent, which was a yearly (66.4 percent) and quarterly drop (66.0 percent). Even more significant was the fact that rate had never seen such a low since the first quarter of 1997 when the rate was also 65.4 percent.

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According to ""Capital Economics"":http://www.capitaleconomics.com/, the low homeownership rate is likely to get a little lower.

In a report, Paul Diggle of Capital Economics wrote, ""it's plausible that tight credit, subdued confidence and many more foreclosures will drive the homeownership rate down to 64%.""

The report explained that tight credit keeps young households from being able to qualify for a purchase, falling prices and a lack of confidence prevents households from deciding to own even if they could qualify for a loan, and foreclosures are turning former homeowners into renters.

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Even though it might seem as though the homeownership rate should rise considering the current climate of low interest rates and prices that seem to be recovering, Capital Economics still expects to see a slight drop.

""After all, while credit conditions should loosen a touch over the next few years, and consumer confidence in the housing market is already returning, it is unlikely that the resulting improvement in housing demand will be enough to offset the cyclical rebound in household formation,"" the report stated.

The research firm expects to see the rate to fall to about 64 percent by 2015, and pointed out that up to 1.7 million households may lose their home to foreclosure in the next few years, which means more renters.

Hence, the positive news from the drop in the projected drop in the homeownership rate is the impact on the rental market, which would be good news for investors.

However, following the next two to three years, the homeownership rate is projected to stabilize and even start rising again as credit conditions ease and credit scores rise along with an improving economy and fewer foreclosures, according to the research firm.

""Finally, while survey evidence suggests that homeownership aspirations have cooled somewhat since the bursting of the housing bubble, owner-occupation is still the tenure of choice for a substantial majority of Americans,"" the report stated.