The Homeownership Gap

Abstract

After rising for a decade, the homeownership rate peaked at 69 percent in the third quarter of 2006. Over the next two and a half years, as home prices fell in many parts of the country and the unemployment rate rose sharply, the homeownership rate declined by 1.7 percentage points. An important question is how large the ultimate decline in the homeownership rate will be over this economic downturn? To address this question, we propose the concept of the “homeownership gap” as a gauge of the downward pressure on the homeownership rate. We define the homeownership gap is the difference between the “official” homeownership rate and a recomputed rate which excludes owners who are in a negative equity position, meaning that the value of their house is less than the outstanding mortgage balance. Our estimate of this gap suggests that the official homeownership rate will likely be under significant downward pressure in the coming years.