WASHINGTON (Reuters) - U.S. homeownership dropped to a 35-year low in the second quarter as more Americans opted to rent, but the decline in ownership was probably close to running its course against the backdrop of a tightening labor market.
The seasonally adjusted home ownership rate fell to 63.5 percent, the Commerce Department said on Tuesday. This is the lowest for the seasonally adjusted series which started in 1980.
The unadjusted series goes back to 1965. The drop in ownership underscores the damage inflicted on housing by the recession and the economy’s subsequent slow recovery from the downturn.
“The trend is not going to continue. We think that the homeownership rate is close to bottoming out, but we don’t expect it to start rising substantially before 2017,” said Andres Carbacho-Burgos, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
The homeownership rate peaked at 69.4 percent in 2004. It was at 63.8 percent in the first quarter. Carbacho-Burgos cited a tightening labor market as one of the main reasons to be optimistic about housing.
The unemployment rate is at seven-year low of 5.3 percent, close to the 5.0 percent to 5.2 percent range that most Federal Reserve officials consider consistent with full employment.
A tightening jobs market is starting to put upward pressure on wages, which economists say will eventually lift the median income and pull more first-time buyers into the housing market.
While the firming jobs market has boosted household formation, that has largely benefited the rental market.
The residential rental vacancy rate fell to 6.8 percent in the second quarter, the lowest level since 1985, from 7.1 percent in the first quarter. The median asking rent increased to $803 in the second quarter from $766 at the start of the year.
Economists say sky-rocketing rents will eventually drive people towards buying, and could exert some upward pressure on inflation later this year.
“Our forecasts that rents will grow at an annual rate of 5 percent both this year and next would represent the fastest rate of rental growth since the 1980s,” said Ed Stansfield, chief property economist at Capital Economics in London.
In the second quarter, homeownership increased among Americans aged 35 years and younger, but declined for every other age grouping.
“As the millennials age, it’s expected they will start buying more homes and hopefully this is a sign that this trend is beginning,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama