The American dream of owning a home appears to be eroding, as fears from the recession linger and people are increasingly choosing to rent, according to a Reuters report.

The U.S. Department of Commerce on Tuesday reported that the seasonally adjusted U.S. homeownership rate fell in the second quarter to 64.8 percent, the lowest level since 1995.

Ownership is down from 65 percent in the first quarter of 2014 and 65.1 percent in 2013. Economists are predicting that homeownership could fall further as mortgages are still hard to come by.

"We are becoming more of a rental society. It's becoming harder to own a home," said Patrick Newport, an economist with IHS Global Insight. "People who lost their homes to foreclosures are now renting, and credit standards have tightened significantly."

Corresponding with the drop in homeownership is the rise in rentals. In the second quarter, the national vacancy rate in rental units was 7.5 percent, the lowest rate in about 20 years. In 2009, the national vacancy rate was 11.1 percent, according to Market Watch.

The tightening in the rental market has resulted in a boom for apartment developers, but single-family home construction has seen better days.

"It's not surprising that young adults are choosing to rent," said Yelena Shulyatyeva, an economist with BNP Paribas. "The shock from the financial crisis is still here."

Last decade's recession began on the back of the bursting of the housing bubble, further discouraging young adults from buying houses. And despite a decrease in unemployment, wage growth has been sluggish.

The single-family housing market now appears to be at the mercy of the Millennial generation, who economists say aren't forming new households once they finish their schooling.

"We are not seeing much growth in household formation, which means that young people graduating from college are moving in with their parents," Newport said. "That trend has not changed much and is the key reason why the housing recovery has been so weak."