The homeownership rate inched up in the last several months to the highest level since 2014, as more households are finding a way to buy homes despite limited supply and rising prices.
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The homeownership rate climbed to 63.9% in the third quarter, up from 63.7% in the second quarter and 63.5% a year earlier, the Census Bureau said Tuesday.
The increase isn't considered statistically significant, but it marks the second consecutive quarterly gain, which suggests upward momentum. Home sales have been sluggish in recent months, while price gains are continuing to accelerate, raising concerns that demand is shrinking.
"We're moving in the right direction in terms of trying to get renters into homes," said Svenja Gudell, chief economist at Zillow, a housing-data company. "We're seeing some movement but not as much as you would expect given other indications in the market," such as strong job growth and low mortgage rates.
This release also indicates demand for homes remains strong and buyers aren't being entirely deterred by the difficulty of finding an affordably priced home to buy. Current inventory levels of both new and existing single-family homes are about 20% below the long-term average.
The homeownership rate touched a 50-year low in the second quarter of 2016 and has since increased fitfully. It remains well below the historic norm of around 65% and the high of more than 69% reached during the bubble years leading up to the 2008 crash.
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"It's struggling to break out," said Lawrence Yun, chief economist at the National Association of Realtors. "The first-time buyers are getting priced out. Housing is unaffordable."
The S&P CoreLogic Case-Shiller National Home Price Index, which covers the entire nation, rose 6.1% in the 12 months ended in August -- the biggest annual increase since June 2014.
The increase in the homeownership rate was strongest in the Midwest, where home prices remain relatively affordable. The homeownership rate there climbed to 69.1% from 68% in the second quarter. The other parts of the country, where prices are increasing much more quickly, saw their homeownership rates remain flat.
There are additional indications in Tuesday's report that households are shifting to owning from renting. The number of owner households increased by 755,000 from a year earlier, while the number of renter households declined by 348,000, according to the Census.
That nonetheless suggests that overall household formation is fairly weak, with just over 400,000 households formed in the third quarter.
The sharp decline in the number of renter households is worrying news for apartment building landlords given that a flood of new rental supply has been hitting the market this year. More is expected to become available into 2018.
Economists said they have seen some falloff in demand for apartments mainly because much of the new supply is targeted toward the high end and there is a limited pool of renters who can afford those. They said they were surprised to see such a sharp decline.
Still, no one is panicking. "We're not seeing any mass exodus from apartments," said Jay Parsons, a vice president at RealPage, a data and software company.
The national apartment vacancy rate increased to 4.5% in the third quarter from 4.1% a year earlier, according to data provider Reis Inc. Rents increased 3.8% over the same period -- still faster than inflation but a significant slowdown from the last couple of years.
The homeownership rate also once again rose among younger households, which suggests that more of them are making the leap from renting to owning. The increases remain slight, however, suggesting there is significant room for improvement. The homeownership rate among households headed by someone under 35 years old rose to 35.6% in the third quarter from 35.3% in the second quarter and 35.2% a year ago.
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(END) Dow Jones Newswires
October 31, 2017 13:24 ET (17:24 GMT)