Sunnier Skies Are Likely on the Way

Thanks to population growth, the number of home owning households in our country normally rises by about 1 million each year. But economic conditions will sometimes throw a hurdle in the way of that.

By Lawrence Yun | March 2011

We faced a big hurdle in the early 1980s when interest rates rose to as high as 18 percent, and we faced another hurdle after the housing “bubble” burst. The number of home owners did not grow from 2005 to 2010, even though the U.S. population grew to 308 million people—13 million more than in 2005. Instead, during that period the home ownership rate dipped to 66 percent from 69 percent.

We know those bubble years were fueled by artificial demand, so the 69 percent home ownership rate we had in 2005 was likely artificial as well. Thus, today’s 66 percent home ownership rate brings us back to a sustainable level.

When you combine this healthy home ownership rate with our country’s projected growth to 340 million people by 2020 (and 420 million by 2050), you can bet our industry’s long-term prospects remain bright. It’s the short-term economic pressure we have to worry about, but even here the news is brightening.

Manufacturing output has been rising. The stock market has recovered nicely. Companies are flush with cash. Consumer confidence has rebounded from very low levels, and jobs are being created.

Against this improving picture, we can expect to see some release of the demand that’s been building up for the last three years. Rising rental costs will also likely tip more renters into home ownership.

Putting these and other factors together, existing-home sales are projected to rise 8 percent to nearly 5.3 million units nationwide this year and possibly to 5.5 million in 2012. At this level, home ownership is solid, but it’s also sustainable given our level of population growth.

Lawrence Yun is chief economist of the NATIONAL ASSOCIATION OF REALTORS®.