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| Reversed Gains in Ownership Rate Lessen Demand |
| Written by Jonathan Smoke | |
| 07.31.2007 | |
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Discuss this article on the forums. (0 posts) Demand for new homes is primarily driven by the formation of new households. Quite simply, assuming no changes in demographics or existing housing stock, a new home start is required to provide housing for each new household in an area that can’t be serviced by existing housing or rental housing.  The second biggest factor that impacts new home demand is any improvement in the home ownership rate. The home ownership rate represents the percentage of households who own their own homes. It was continued positive improvements in this rate along with second home and investor demand growth that represented the majority of the boom in housing experienced in the first half of this decade.Now the positive ownership rate trend is reversing. In the midst of last week’s negative news on housing, the latest data from the Census Bureau was released on home ownership rates. The national home ownership rate declined for the third straight quarter and is now at 68.4%. Home ownership rates vary significantly by geography and by demographic factors due to credit and affordability. That means that builders and developers who focus on entry level products and/or operate in affordability challenged areas may see continued declines in demand. And because move up buyers need to sell their existing entry level homes, with declining demand for entry level homes the days on market and months’ supply of most homes for sale may remain high for some time. We will dig into the ownership rate history and see if we can determine what these changes mean for overall new home demand for the remainder of this decade. Stay tuned for what we find. 
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