Harvard University's Joint Center for Housing Studies' new ten-year projections reflect a general slowing of growth in both homeowner and renter households. According to its new paper, between 2025 and 2035, annual growth in homeowner households is expected to range from 337,000 to 685,000, while annual growth in renter households ranges from 174,000 to 523,000. The low range across both tenures is because the projections extend subdued household growth projections published in January, which call for a total household growth rate of just 859,000 per year in 2025–2035.
The projections also incorporate relatively modest changes in homeownership rates in 2025–2035 under three different scenarios, ranging from a 0.8 percentage-point increase (to 66.8%) to a 1.6 percentage point decrease (to 64.3%), with the base scenario leaving rates unchanged (at 65.9%). These small swings are because the projections are driven by demographics and therefore do not account for unpredictable changes in financial conditions, such as a sudden rise or fall in interest rates, that could easily lead to larger movements in homeownership rates. As such, the projections offer a “baseline” look at likely trends in homeownership under stable financial conditions.
Three scenarios for the future direction of homeownership rates
The projections offer three scenarios for changes in homeownership rates in the next 10 years. The scenarios differ according to assumptions about the extent to which today’s younger households will be able to become homeowners at rates similar to previous generations as they age, or if persistent barriers like high housing costs hold down homeownership rate trajectories of younger cohorts in a lasting way.
The base scenario
The base projection scenario holds homeownership rates constant by age and race/ethnicity, so that any change in the overall homeownership rate is due to changes in the underlying age and racial/ethnic mix of households. Results from the base projection show that these two forces of aging and increased racial diversity will offset each other in 2025–2035 and leave the overall homeownership rate unchanged during that time at 65.9%. Average annual homeowner growth in 2025–2035 is 560,000 per year under this scenario, which is 18% less than the 685,000 per year historical average annual increase in owners since 2000. Average annual growth in renter households is also just 299,000, which is roughly 50% less than the 524,000 per year historical average annual increase in renters since 2000.
The average-trajectory scenario (the highest homeownership rate projection)
The average-trajectory scenario assumes that today’s younger cohorts will experience historically average increases in homeownership rates as they age in 2025–2035. This results in a 0.8 percentage point increase in the homeownership rate between 2025 and 2035, which is the highest scenario for homeownership rates. It also results in the highest growth in homeowner households over the next ten years of 685,000 per year, which is roughly equal to historical average annual homeowner growth since 2000. On the other hand, expected renter growth under this scenario is just 174,000 per year, which is the lowest of the three scenarios and fully 67% below historical average annual renter growth since 2000.
The low-trajectory scenario (the lowest homeownership rate projection)
The low-trajectory scenario assumes that homebuyer conditions will continue to be a substantial barrier to homeownership for young adults. This scenario assumes that cohorts under age 35 in 2025 will see historically low gains in homeownership over the next ten years, equal to the historically lowest-ever gains achieved by previous cohorts at these age groups over the past 30 years. This scenario is the lowest for homeownership rates, but the highest for renter household growth. It results in a 1.6 percentage point decline in the overall homeownership rate and homeowner growth of just 337,000 per year, which is less than half (51% below) the recent average annual level of homeowner growth since 2000. Meanwhile, projected renter household growth under this scenario, at 523,000 per year, is the highest of all three scenarios and roughly equal to historical average annual renter growth since 2000.
The bottom line
In the context of slowing household growth overall, the three projection scenarios produce increases in both homeowner and renter households that are historically average at best and well below average in others. Given that high home prices and interest rates continue to be a barrier to first-time buyers and homeownership rates are still falling through mid-2025, the low-trajectory projection scenario may be the most likely one, which would mean historically low levels of growth in homeowner households but sustained growth in rental demand. However, a sudden decline in mortgage interest rates or other impacts to affordability could support a higher scenario for homeownership rates and a drop in rental demand. As such, any projections of tenure should be viewed within a wide margin of error because of their sensitivity to sudden changes in unpredictable financial conditions. Still, these projections provide a picture of how demographic change and the projected slowing of household growth over the next ten years could affect both homeowner and renter households under a range of future movements in homeownership rates.