THE U.S. HOMEOWNERSHIP RATE HIT AN ESTIMATED 69 percent in 2004, a new annual record. Indeed, the homeownership rate has climbed five percentage points during the past 10 years, an impressive run after a decade of virtual stagnation.

The dramatic performance in recent years moved the nation's homeownership rate toward the top of the list for countries around the world and, in the process, prompted speculation that the U.S. rate has been approaching a natural limit. But there's still plenty of potential for rising homeownership in this country, and public policy is focusing on some glaring differences across income classes and racial and ethnic groups. Thus, it appears that builders of single-family homes and condo units can look forward to a dominant share of the housing pie for some time to come.

Geographic Differences Large regional differences in homeownership rates also strongly suggest that the U.S. homeownership rate has not yet approached some sort of natural limit. In 2004, regional rates ranged from about 64 percent in the West to about 74 percent in the Midwest. While it may be tough to raise the Midwest rate substantially, there's certainly a lot of mileage to be gained in other regions of the country. In this regard, one of the keys to future gains is to improve affordability in areas beset by overly stringent land-use controls and heavy regulation costs.

Demographic Drivers There's a powerful relationship between the age of homeowners and homeownership rates. Indeed, the rate currently ranges from about 43 percent for those under 35 to more than 80 percent for those 65 and older. The systematic aging of the baby boomer generation (those born in the United States between 1946 and 1964) inevitably will put upward pressure on the country's overall homeownership rate in coming years.

The increasing number of recent immigrants becoming first-time owners also will help drive the nation's homeownership rate higher. Net immigration was stalwart in the 1990s, averaging more than a million per year, and history shows that the homeownership rate among the foreign-born rises systematically with the number of years lived in the United States.

Income And Racial And Ethnic Gaps Income is a primary driver of homeownership. Indeed, the homeownership rate ranges from less than 50 percent for households in the lowest income bracket (under $10,000) to more than 90 percent for those in the highest bracket (over $100,000).

Not surprisingly, there also are striking homeownership differences across racial and ethnic groups. In 2004, the rates ranged from less than 50 percent for both black and Hispanic households to more than 75 percent for non-Hispanic white households.

Bottom Lines There's clearly a lot of homeownership potential in the United States, and public policy has recognized the societal benefits stemming from expanded homeownership opportunities for low-income and minority households.

A recent study conducted by the NAHB and other housing groups and published by the Homeownership Alliance, “America's Home Forecast: The Next Decade for Housing and Mortgage Finance,” concludes that the U.S. homeownership rate most likely will range from 70.9 percent to 72.4 percent by 2013. That implies an average annual increase in the number of homeowners in the range of 1.2 million to 1.4 million!

David F. Seiders
Chief Economist, NAHB, Washington, D.C.