Why Homeownership Is Stalling Even As Home Sales Improve

Homeownership rate stays steady even as more houses are being sold.

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It's an odd paradox: buyer demand is strong, year-over-year home sales are starting to heat up, and yet the homeownership rate barely budged in the first half of 2012, seemingly lodged in place at a near 15-year low.

This isn't the first time the housing market has been a web of mixed messages. This time around, a lot of it has to do with the ongoing foreclosure crisis and real estate investors who've been able to scoop up discounted properties and rent them out to a growing population of renters.

The nation's homeownership rate rose to 65.5 percent at the end of June, up from 65.4 percent at the end of the first quarter, according to a recent report from the Census Bureau. That figure is down from 65.9 percent a year ago.

"After a grueling housing recession, the homeownership rate is at last becoming a product of opposing forces—continued downward pressure from elevated foreclosure rates and modest upward pressure from recovering household formation rates and high housing affordability that is making buying attractive relative to renting," Stan Humphries, chief economist at Zillow, wrote in an E-mail.

[Read: Negative Equity Problem Could Make Foreclosure Crisis Even Worse.]

But while buying might be more affordable than renting on paper, house hunters still have to clear myriad hurdles before getting the keys to their new digs. The fallout from the foreclosure crisis has all but made mortgage credit unavailable for one set of former homeowners and super-strict lending standards have cut off another cohort from financing, pushing an increasing number of Americans into renting.

Investors with the cash to buy a property outright or with pristine credit have capitalized on the shifting sands in the housing market, buying up properties and renting them out.

An influx of investors buying up properties actually drives down the homeownership rate, because the homeownership rate is calculated by dividing the number of households that are owner-occupied by the total number of occupied households. Investors generally purchase a property, but then rent to another household, which doesn't make them owner-occupiers. That reduces the "owner-occupiers" in the equation, which ultimately means the homeownership rate takes a hit.

The latest estimates from the National Association of Realtors showed that investors accounted for about 19 percent of home purchases in June, up from 17 percent in May, but housing experts and industry observers believe that number could shoot higher as government foreclosure-to-rental programs take off.

[Read: Miami Housing Market Goes International—Literally.]

Overall, most experts expect the homeownership rate to continue to fall in coming years—down to 64 percent according to some estimates—as the fallout of the foreclosure crisis continues to work through the system and rental demand remains elevated.

According to the Census report, the rental vacancy rate fell to 8.6 percent in the second quarter, the lowest reading since the second quarter of 2002.

The scarcity of rental properties to satisfy the demand of a growing, foreclosure-fueled rental population is one of the reasons real estate is so lucrative for investors. Rent prices have grown double-digits in some places and with property values starting to find a floor, investors can count on a bit of capital appreciation in addition to rental income.

Meg Handley is a business reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter.