It’s no secret that the homeownership rate (HOR) has dropped a whopping 250 basis points, from a peak of 69.4 percent to 66.7 percent, since the housing price bubble burst. And the lingering effects of that downward spiral could drive the HOR to as low as 64 percent—the average for the 1985 to 1994 time period. The big question is whether changing demographics will lead to a homeownership surge in the coming years. Forecasting the number of owners vs. renters depends mainly on economic and demographic projections. Since good economic projections remain elusive, analysts rely instead on demographic data to make predictions. When looking at demographics, different analysts come to different conclusions. Some argue that the aging population will cause HORs to increase.

The National Multi Housing Council believes that demographics likely will have little net impact on the HOR. This is because the boost to ownership from an older population will be cancelled out by changes in household composition as well as race and ethnicity.

The Cycle of Life

Analysts traditionally rely on a “life cycle” story to explain housing and tenure decisions. That is, young people typically start out renting and moving frequently. They eventually settle down, usually with a spouse, and buy a small single-family home (or condo). Then come children, higher incomes, and the eventual trading up to a larger single-family house. Still later, after the children move out, the couple trades down—in size, not necessarily in price—to a house better suited for retirement.

Unfortunately, this narrative never fully explains the dynamics of household formation and tenure choice—not only do many take a different path, but a variety of lifestyle and personal economics also play critical roles in the rent vs. buy decision. Still, the life cycle model is surprisingly useful in projecting the general trend in the overall HOR because it incorporates lifestyle choices (you’re more likely to choose ownership if you’re a married couple) as well as economic choices (your income and wealth grow with age).