A long-term rise in the homeownership rate ended last year, and the latest report from the Harvard Joint Center for Housing Studies examines some reasons why.

A widening gap between housing costs and wages contributed to the 30 basis-point drop in the ownership rate year over year to 65.6%, according to Census data. This marks the first decline in eight years if 2020 is omitted based on data collection issues, or since 2021 if the initial year of the pandemic is included.

The shift from a rising homeownership rate to a declining one is the result of a gradual increase in affordability pressures rather than any abrupt change, according to Daniel McCue, senior research associate at the center.

“It’s an inflection point,” he said in an interview about the switch to a declining homeownership rate that’s highlighted in the center’s latest annual State of the Nation’s Housing report.

What follows are some factors that contributed to the change in the direction of the homeownership rate, and what this means for the housing outlook in 2025.

Trends that brought the market to a tipping point

“The high costs, high prices and the high interest rates continued. Something that also continued was low inventory,” McCue said. “Household growth overall slowed down over the past year, an indicator of slowing income.”

Home insurance premiums also rose 57% between 2019 and 2024 according to Freddie Mac data, the study points out.

“That did increase rather substantially for some locations over the past year. So that’s part of that was part of the equation, too,” he said. 

In a market with high insurance costs like Miami, premiums can be over three times the national average, McCue noted.

The cost burden has been particularly difficult for first-time homebuyers to bear, contributing to the slowdown in household growth.

The homeownership rate “fell most sharply for the youngest households, really pointing to the difficulties in buying that first home for the youngest potential buyers,” McCue said.

How the housing market has been coping with the challenges

Lenders and builders have been attentive to these shifts and have responded by offering interest rate buydowns and focusing more on access to the kind of homes that might be more affordable, an effort complicated by rising costs for building materials.

“Building smaller homes, a product at a lower price point, has been a theme, really showing the limitations that affordability has,” said McCue. “Homebuilders are seeing the need to increase affordability in order to increase sales.”

Rate buydowns offered primarily by large builders with their own mortgage units can help with costs for concerns for builders and consumers as they can make homes more affordable both without lowering the price of the house itself.

While studies vary on how helpful some types of buydowns are to borrowers, the center finds they generally have both consumer and business-side advantages.

“They can make a better, bigger impact by offering a buydown of the interest rate than they can from an equivalent amount spent lowering the house price,” McCue said. 

The outlook for homeownership this year

What 2025’s trends will look like could depend on policy outcomes.

Trump administration officials have shown interest in developing more sources of affordable housing but the Harvard report finds proposed tariffs show potential to add $10,900 to home costs

The broader inflation that monetary policy officials have been working to quell was already driving up the cost of building materials prior to this year, so the upward trend in these expenses isn’t new, but it could intensify this year.

Whether the inflection point in the nationwide homeownership rate means there will be one when it comes to home prices remains to be seen. So far, it looks unlikely given that the job market and loan performance are still historically strong and given the upward pressure on housing costs, McCue said.

“You look at jobs and unemployment rates to look for whether there will be distressed sales, and that’s where you’ll find home prices being pressured to drop. But now it’s more of a factor of affordability straining some of the people at the lower end of the market,” he said.