Homeownership on the rise for lower-income households
The percentage of below-median income households that own a home has climbed significantly, hitting 53% in the first quarter of 2023.
- A Freddie Mac report found that the rise in lower-income homeownership has persisted even through the past two quarters of elevated interest rates.
- While still below the overall homeownership rate of 66%, the gap between lower- and higher-income households has shrunk to its lowest level in decades.
- The Economic & Housing Research group noted that their overall housing market outlook "remains muted."
Even with elevated interest rates and high prices, more lower-income households are finding ways to purchase a home — a bright spot in the midst of a challenging market.
In its June outlook report, Freddie Mac noted that the homeownership rate for those with a below-median family income has risen sharply since 2016, from 48% to 53%. That's a much faster pace compared with higher-income households.
The trend continued through the end of 2022 and the first quarter of 2023, despite elevated interest rates that have made buying a house more difficult, especially for households that cannot easily absorb a higher monthly mortgage payment.
While on the rise, the homeownership rate for households earning less than the median income remains well below the overall homeownership rate of 66% in the first quarter of 2023 — the highest first-quarter level since 2011. The rate is highest in the Midwest (70.3%), where homes are typically more affordable, and lowest in the West (61.9%).
The recent rise in lower-income homeownership rates has narrowed the gap between lower- and higher-income households to 25.2%, the smallest gap since at least 1994.
"The strong growth in the below-median family income homeownership rate may seem unexpected given the strong house price growth since the pandemic and more recently, the jump in borrowing costs," according to the report authors. "Nonetheless, below-median family income households are overcoming constraints and finding ways to become homeowners even within a less affordable environment."
In a discussion on LinkedIn, Leonard Kiefer, deputy chief economist at Freddie Mac, said the rising lower-income homeownership rate speaks to the enormous tailwind of housing demand coming from young adults.
"Our research has shown that while last year's interest rate increases priced out millions of potential homebuyers, there are millions more that could likely qualify for a mortgage even at today's rates and with today's prices," Kiefer said.
The rest of the report, released on June 16, noted the challenging conditions still in place. Freddie Mac's Economic & Housing Research group remains "cautious" about home prices, forecasting a 2.9% drop through the first quarter of 2024 and an additional 1.3% decline over the following 12 months.
"Our housing outlook, particularly for home sales, remains muted due to the challenges presented by higher mortgage rates and a slowing economy," the research team concluded.