Is a Turnaround Looming for the Homeownership Rate?
July 29, 2019
The homeownership rate fell slightly to 64.1% in the second quarter, according to U.S. Census Bureau data released this week. While the number of new households is rising, the homeownership rate was mostly flat during the quarter due to the increase mostly coming from new renter households. The number of new renters was larger than the number of new owners for the first time since the fourth quarter of 2016, according to census data.
“The housing shortage, especially at the level of moderately priced homes, has prevented financially capable renters from owning,” Lawrence Yun, chief economist of the National Association of REALTORS®, said in a statement about the latest homeownership rate numbers. “More home construction is needed to relieve the housing shortage and allow more Americans to participate in the wealth gains associated with ownership.”
Indeed, the homeownership rate is below what it should be, Mark Fleming, chief economist of First American Financial Corporation, a title insurance provider, noted in a separate report this month. In 2018, the homeownership rate underperformed potential demand by 8.7%, and Fleming points to young adults and their lifestyle choices as the main culprit.
Millennials have trailed their generational predecessors when it comes to homeownership. They’ve delayed marriage and children, which are often lifestyle triggers to purchasing a first home. Fleming notes a six percentage point difference in homeownership between millennials and Generation X at the same age of 30 years old.
“But the bulk of millennials have yet to turn 30, which signals higher potential homeownership demand may be on the horizon,” he notes.
The largest group of millennials by birth year will turn 30 in 2020, which puts them entering their prime homebuying years, he notes.
Millennials—the most educated generation--have the highest incomes across their generational cohorts, even when salaries are adjusted for inflation. Comparing the millennials with their predecessors at age 37, inflation-adjusted median household income is $77,000 for millennials, $72,000 for Generation X, and $69,000 for baby boomers.
“Higher income leads to higher house-buying power,” Fleming notes. “Coupled with today’s 3.8 percent 30-year fixed-rate mortgage, 37-year-old millennials can afford $35,000 more home than Generation X and $52,000 more home than baby boomers at the same age.”
Fleming says the homeownership rate is poised for a turnaround soon. “The gap between the potential and actual homeownership in 2018 narrowed slightly as the growth in homeownership modestly exceeded the increase in potential demand,” he says, citing First American’s Homeownership Progress Index. “We expect the homeownership rate to further close the gap with potential in the years ahead as millennials continue to make important decisions, such as attaining an education and, later in life, getting married and having children.”
“What Is Preventing the Homeownership Rate From Reaching Its Potential?” First American (July 18, 2019) and CoreLogic
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Updated: September 30, 2020