U.S. Homeownership Rate Remains Stagnant Amid Affordability Struggles

U.S. Homeownership Rate Remains Stagnant Amid Affordability Struggles

The U.S. homeownership rate remained steady at around 65% in the third quarter of 2023, according to the latest data from the Commerce Department, released Thursday. Despite recent declines in mortgage rates, analysts point to persistent affordability challenges that are keeping homeownership rates flat.

The third-quarter homeownership rate stood at 65.3%, a modest increase from the first quarter’s 65.1% and the second quarter’s 65%. However, the rate has yet to recover to the 66% level reached in the third quarter of 2022, or the 69.2% peak seen in the fourth quarter of 2004.

Analysts attribute the stagnation in homeownership to rising housing costs, limited new construction, and the increasing financial strain on consumers from higher expenses in other areas, such as food and utilities. Bankrate, a financial data firm, reported this week that households earning the median U.S. income are now priced out of approximately 75% of homes currently listed for sale.

Experts typically consider housing to be affordable when mortgage or rent payments do not exceed 30% of a household’s total income. According to Bankrate, based on data from the Census Bureau and Claritas, the typical U.S. household earns about $80,000 annually. However, to afford the median-priced home of $435,000 (as of July), a household would need to earn approximately $113,000.

Although recent declines in mortgage rates may provide some relief, their effects on home sales could take time to materialize. Freddie Mac’s latest national survey of lenders reported that 30-year fixed-rate mortgages averaged 6.22% for the week ending December 11, up slightly from 6.19% the previous week, but still lower than the 6.6% average from the same time last year.