High foreclosure rates and a strong rental market pushed the homeownership rate in the U.S. to a 15-year low, even as projections for the housing market grew brighter.
The 65.4% rate in the first quarter is down from the 66% rate in the fourth quarter and 66.4% in the first quarter of last year, according to the Census Bureau. Before the housing bubble burst, homeownership reached a high of 69.2% in 2004.
The current rate is low compared with the last decade partly because earlier homeownership rates were inflated by people who hadn't made down payments and were really "renters with an option to buy," said Richard K. Green, director of USC's Lusk Center for Real Estate.
In the 1970s, 1980s and 1990s, the homeownership rate stayed roughly in the mid-60% range, Green said.
"We were getting numbers up toward 70% that just didn't make any sense," he said. "If the number goes below 64%, it'll be something to be alarmed about. But above that — we're just going back to where we should be."
Several reports in the last month suggest the outlook for the struggling housing market is promising.
Pending home sales are at their highest level since April 2010, according to the National Assn. of Realtors. Lawrence Yun, the group's chief economist, said the market "has clearly turned the corner."
Price declines are easing. Housing data provider Zillow said last week that home values are bottoming in most major markets and are set to begin rising in metropolitan areas such as Los Angeles.
And recent gross domestic product numbers showed improvement, thanks in part to investment in the residential market, said Patrick Newport, an analyst at IHS Global Insight.
"Housing is adding to growth now and I think it is going to continue going forward," Newport said.
He believes that the homeownership rate will continue tumbling to about 64%. Although mortgage rates and home prices are low at the moment, many households are still struggling to secure credit.
"We are heading back toward a market that we had 20 years ago, where to qualify for a home you would have good credit, a good down payment and a good, steady job," Newport said.
Many prospective property buyers have been scared off after seeing a significant number of homeowners struggling with underwater properties, which won't sell at a high enough price to pay off the mortgage. In addition, foreclosures remain common and may continue to increase after a landmark settlement with loan servicers earlier this year.
Mark Zandi, chief economist of Moody's Economy.com, said there is still a pipeline of about 3.6 million homes in which the owners are either in foreclosure or seriously delinquent on their payments. Even though homeownership may continue to fall, the housing market is improving, he said.
"I think the crash is over," Zandi said. "House prices are still soft but in general, despite today's obviously depressing news, the housing market is past bottom."
Homeownership in the first quarter was down in every region, the Census Bureau said Monday, falling to 59.9% in the West, which in addition to having the lowest rate in the country also hasn't had such a small percentage of homeowners since at least 2006.
Rates among minorities continue to trail the nationwide numbers. Black homeownership is at 43.1%, while the Hispanic rate is 46.3%. Both groups' rates are the lowest they've been in years.
Rents, however, are at a post-recession high at a median $721 a month. Vacancy rates at rental properties fell to 8.8% — their lowest level in a decade.
Young Americans are now heavily inclined to lease, rather than own, their homes. The rate of American homeowners ages 35 and younger fell to its lowest point since 1994 as many opted for leased apartments and shared spaces.
The rental market, with its strong demand and limited supply, is "a boon for landlords," according to an investors note from Capital Economics, whose analysts believe rental rates will continue to rise.