Despite a mild increase in homeownership over the past two years, strong demand for multifamily housing should continue. The homeownership rate rose to 64.8% in Q4 2018, a 0.6-percentage-point increase from the prior year. Q4 marks the eighth consecutive quarter of rising homeownership on a year-over-year basis.
Homeownership rates began rising in Q3 2016 after falling since 2005. The Q4 2018 rate of 64.8% is up nearly 2 percentage points from the cyclical low of 62.9% in Q2 2016 but is well below the 2004 peak of 69.2%.
Homeownership for 35- to 44-Year-Olds Rises More Than 2 Points
The most notable change in the Q4 homeownership rate for the multifamily industry was the 2.2-point year-over-year rise for 35- to 44-year-olds (older millennials and younger Gen Xers) to 61.1%.
The homeownership rate for older Americans is much higher: 78.8% for those aged 65 and higher, and 75.5% for those aged 55 to 64. In contrast to the other age cohorts, homeownership fell for the 65+ year-olds for the sixth quarter in a row. This decline indicates that some older households are trading homeownership for rental options, including conventional multifamily, active adult and seniors housing.
Figure 1: 2018 Change in Homeownership Rates by Age of Householder
Source: CBRE Research, U.S. Census Bureau, Q4 2018. Based on not-seasonally adjusted data.
Largest Increases in the West
Among the four major U.S. regions, the West had the largest gain in homeownership, up by 0.9 percentage points year-over-year to 60.9%. The South recorded the smallest change—a 0.2-percentage-point gain to 66.0%. Homeownership rates in the Midwest and the Northeast essentially mirrored the national trend.
Among metros with at least 1 million population, San Jose had the lowest homeownership rate in Q4 (47.1%), followed by Los Angeles (50.0%) and New York (50.4%). Other larger metros with low homeownership rates (under 60%) were San Francisco, San Diego, Portland, Las Vegas, Austin, Boston and Orlando. Metros with low homeownership rates are typically either high-housing-cost metros or metros with high in-migration.
In terms of intra-metropolitan patterns, homeownership climbed slightly more in urban areas than suburban. The Q4 2018 urban rate was 50.3%, up 1.1 points from the prior year. This increase is likely largely due to younger households moving into homeownership. Suburban homeownership rose by 0.4 points to 71.8%.
Should the Multifamily Industry Worry?
Despite rising homeownership, demand for multifamily housing remains very strong. Steady economic expansion and favorable consumer confidence over the past two years have led to strong housing demand overall. CBRE Econometric Advisors reports that 2018 multifamily net absorption totaled 287,000 units in the 66 major metros it tracks—the highest annual total since 2000.
The modest gain in the homeownership rate over the past two years is not surprising, given the steady economic expansion, the millennial demographics (more than half of millennials are in their 30s) and the ongoing housing recovery from cyclical lows. Prior economic and real estate cycles had much more pronounced gains in homeownership.
The past two years’ slow, steady increase in the homeownership rate has had minimal impact on multifamily demand. And provided the homeownership rate gains remain moderate, the impact on multifamily will continue to be mild.
CBRE Research expects the homeownership rate to climb about half a percentage point in 2019. While this increase could slightly dampen multifamily demand, it will not derail the 10-year trend of very strong absorption performance.