Forget About Tax Changes – Homeownership Edges Higher Again

Friday, May 4, 2018 by Zelman & Associates

When tax reform became a meaningful conversation in late-2017, there was widespread concern that de-emphasizing itemized deductions for property taxes and mortgage interest would serve as a marginal headwind to the desire for homeownership. For any given set of demographics, we have been of the opinion that homeownership is most highly correlated with income and the net effect of tax reform would be a positive, rather than negative, catalyst for the homeownership rate. While still in the early innings of tax changes, this has proven to be the case.

According to the Census Bureau’s Housing Vacancies and Homeownership Survey, the national ownership rate was 64.2% in 1Q18, up 60 basis points year over year. This is now the fifth consecutive quarter where year-over-year gains were registered. The first quarter performance is particularly encouraging for two reasons. First, it is very likely that the vast majority of purchases during this time were negotiated after tax reform was passed into law. Second, it is perhaps underappreciated that to move the total homeownership rate requires a notable shift from the small minority of households that actually move during the period. We refer to this as the incremental homeownership rate, which continues to trend higher.

Our analysis of age-related detail is also encouraging. As compared to the 60 basis point year-over-year total increase, outsized expansion was reported for 30-34 year olds (up 170 basis points), 40-44 year olds (up 110 basis points) and 25-29 year olds (up 90 basis points). The leverage from younger households is notable given the perception from many that the desire for homeownership of this generation is under pressure. In fact, across the 12 age groupings that we analyze, nine posted a year-over-year increase, the most in a quarter since 2Q04. Remarkably, even from 1994 to the peak in 2004 when national ownership rates were on an upward climb, this degree of breadth was only witnessed 25% of the time.

In June 2011, we published an expansive demographic reported titled Leasing the American Dream…For Now that predicted a drop in the national homeownership rate from 66.4% at the time to 64.5% by 2015 before rebounding to 65.1% by 2020. While the rate bottomed slightly later and lower (2016, 63.4%) than anticipated, with the measure at 64.2% presently, our 2020 forecast appears very achievable at this point. If only for-sale inventory was more plentiful.

Forget About Tax Changes – Homeownership Edges Higher Again

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