Real Estate

Homeownership rate lowest in 25 years

Heady home prices
Heady home prices

Home prices are rising, and homeownership is falling. How can that be?

If prices are rising, it must be because there is increasing demand for homes, but if there is increasing demand, then why are there fewer homeowners?

It has to do with this: math. The homeownership rate in the first quarter of this year fell to 63.7 percent, the lowest since 1990, according to the U.S. Census. The homeownership rate is the ratio of households that own to overall households—the remaining being rental households.

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We already know that rentership has increased dramatically, and continues to do so, as the economy improves and more kids move out of their parents' basements and into rental apartments. Rental vacancies are at historic lows. Rents are soaring.

Housing recovery still in full swing
Housing recovery still in full swing

The pool of total "households" or occupied houses, which includes both owners of those houses and renters of those houses, is getting bigger. The gain is all on the renter side, the census report also notes. That therefore means that the share of owners of that total pool, which is the homeownership rate, must get smaller, even if there wasn't a big drop in the actual number of people who own homes. There's the math.

"Inventory remains tight in many markets and that's helping keep a floor under price gains," said Jed Kolko of Trulia, a real estate company. "Because of demographics and a strengthening job market for young adults, there is very strong rental demand."

Having said all that, we should also note that there was actually a slight decline in the total, real number of homeowners. It wasn't enough alone to push the homeownership rate down as far as it did, but it should be noted. As investors continue to buy single-family homes, and first-time buyers remain unable to afford today's prices, real homeownership takes a hit.

In the nation's 20 largest markets, home prices were 5 percent higher in February versus the same month one year ago, according to the S&P/Case-Shiller home price index. While this index is a three-month running average of closed sales, other surveys have also seen a reacceleration of home price gains. Denver and San Francisco saw the biggest gains, with prices up 10 percent and 9.8 percent, respectively.

Read MoreHome prices in 20 metro cities rise 5% in Feb: S&P/Case-Shiller

"Home prices continue to rise and outpace both inflation and wage gains," said David Blitzer, of S&P Dow Jones Indices. "If a complete recovery means new highs all around, we're not there yet."

First-time buyers historically increase the homeownership rate, but they are still a historically small share of today's buyers. If prices continue to heat up, and more markets hit or surpass their bubble peaks, homeownership will continue to drop.

That's because unlike during the latest housing boom, the mortgage market isn't fueling the prices; instead, it's a lack of supply. Lower- and even middle-class Americans are therefore less and less able to become homeowners. The split between the haves and the have-nots, at least in housing, appears to be widening.