UPDATE 2-U.S. homeownership at 17-year low as recession scars linger

Tue Apr 30, 2013 3:04pm EDT

* Homeownership rate lowest since fourth-quarter 1995

* Rental vacancy rate slips, off 2009 peak of 11.1 percent

* Homeowner vacancy rate climbs to 2.1 percent

By Lucia Mutikani

WASHINGTON, April 30 (Reuters) - Homeownership in the United States hit a 17-year low in the first quarter as more Americans opted to rent, continuing a trend exacerbated by the collapse of the housing bubble.

The seasonally adjusted homeownership rate slipped to 65.2 percent, the lowest since the fourth quarter of 1995, the Commerce Department said on Tuesday. The rate, which peaked at 69.4 percent in 2004, was 65.3 percent in the fourth quarter.

Economists said homeownership could decline even further given that about 10.4 million homeowners owe more on their mortgages than their homes are worth and credit is still tight.

"It's probably going to drop another point or two over the next three years because there are still a lot of foreclosures. More people are going to become renters going forward," said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts.

The 2007-2009 recession, sparked by the collapse of the U.S. housing market, has left the economy with deep scars that will take long to heal. Though the recovery is now in its fourth year, it has been too sluggish to foster faster job growth.

The unemployment rate is at an uncomfortably high 7.6 percent and about 21.6 million people are either unemployed, working only part-time although wanting full-time work, or want a job but have given up the search.

With so much slack in the labor market, income growth has been sluggish, contributing to a weak underlying backdrop for home purchase demand.

The rental market has tightened as more people have given up on the Americans dream of owning a home.

In the first quarter, the residential rental vacancy rate eased to 8.6 percent from 8.7 percent in the last three months of 2012. It has dropped from a peak of 11.1 percent in 2009.

The low ownership rate provides fresh evidence that a decisive turnaround in home sales has been driven by investors, who are snapping up properties to rent out.

RENTING MORE APPEALING

"It's the same story of people choosing to rent versus owning a home," said Yelena Shulyatyeva, an economist at BNP Paribas in New York. "So far in the recovery home sales have been supported by investors and what happens if they go away?"

Last week, the National Association of Realtors said investors accounted for about a fifth of sales of previously owned homes in March, with cash sales accounting for just under a third of all transactions.

The related demand has led to a dwindling stock of houses on the market and sent selling prices higher. A report on Tuesday showed single-family home prices recorded their largest gain in February in almost seven years.

The Commerce Department report showed the median price home sellers sought in the first quarter was the highest in two years, while the median rent slipped a bit.

Economists said the shift in ownership meant rentals would continue to drive the housing market recovery in the near-term.

"We will see more multifamily units built and fewer single family units," said Newport.

That would imply housing would offer less of a boost to the economy than it would if purchase demand was stronger, partly because the multifamily segment of the market is considerably smaller.

"For the housing story to be happily ever after, you need a pick-up in genuine demand, but unfortunately people are still choosing to rent," said Shulyatyeva.

In the first quarter, homeownership fell across all age groups, but remained high among people 65 years and older. The decline was most pronounced in the 45-54 age group, where the ownership rate fell 0.8 percentage point.

Ownership among people between 55 and 64 years fell 0.6 percentage point in the first quarter.

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