* Ownership rate falls to 65.1 percent in second quarter
* Rate lowest since fourth-quarter 1995
* Rental vacancy rate lowest since first-quarter 2001
By Lucia Mutikani
WASHINGTON, July 30 (Reuters) - Homeownership in the United States hit a 17-1/2-year low in the second quarter as Americans continue to shift toward renting, one of the lingering legacies of the recession.
The seasonally adjusted homeownership rate, the share of households owning a home, slipped to 65.1 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 65.2 percent in the first quarter.
High unemployment, a shortage of homes for sale and stringent lending practices made renting more appealing, economists said, warning that the share of Americans owning a home would continue to drift lower.
"There is a big shortage of homes and the amount of households and people that need to live somewhere is increasing," said Guy Berger, an economist at RBS in Stamford, Connecticut. "It's difficult to buy a home, they have to look somewhere, so they are renting."
Four years since the 2007-09 recession ended, the unemployment rate is at an uncomfortably high 7.6 percent and about 22.6 million people are either unemployed, working only part-time although wanting full-time work, or want a job but have given up the search.
While the housing market has decisively swung to firmer ground, economists argue that the recovery is partly being driven by investors, keen to take advantage of the rising demand for rental accommodation.
"Household formation is going into the rental market. Investors are buying empty homes and converting them into rental markets, that's who the market is clearing," said Julia Coronado, North America chief economist at BNP Paribas in New York. "We have not seen is renewed interest in home ownership."
The residential rental vacancy rate fell four-tenths of a percentage point to 8.2 percent in the second quarter, the lowest reading since the first quarter of 2001.
It has dropped from a peak of 11.1 percent in 2009, putting upward pressure on rents. In the second quarter, the median asking rent increased to a record $735.
Economists worry that rising mortgage rates could cause the homeownership rate to creep even lower in the short-term.
"It does make rental activity more economically appealing on the margin than owning a home," said RBS' Berger.
"Even if rates pause where they are, most people think they are going to be higher in a year or two than they are now and that is the kind of thing that potentially in the short run depresses homeownership a little bit or even more."
In the second quarter, the decline in homeownership was concentrated in the 45-54 age group, where it fell four-tenths of a point. It rose among people 65 years and older, in line with recent trends.
Ownership among people between 55 and 64 fell 0.3 percentage point in the second quarter. There were small gains in the 35-44 age range.