Behind the Decline in Homeownership
Tuesday, June 2, 2015
From American Consumers Newsletter
Remember the boom in the housing market- – those heady days when even young adults were eager to embrace home buying? Between 1995 and 2005, the homeownership rate of households headed by people aged 25 to 34 climbed from 45 to 50 percent. It seemed like the good times would never end. Then they did. Between 2005 and 2014, the homeownership rate of 25-to-34-year-olds plunged by 10 percentage points to just 40 percent.
An investigative report by Rachel Bogardus Drew of the Joint Center for Housing Studies explores the reasons for the decline, and her results show the Great Recession is not entirely to blame. Another factor is the changing demographics of the 25-to-34 age group, with two changes most important.
Marriage: The married-couple share of households headed by 25-to-34-year-olds fell from 53 percent in 1995 to just 42 percent in 2014. Because two incomes are often necessary for homeownership, fewer married couples means fewer homeowners among young adults.
Minorities: The minority share of households headed by 25-to-34-year-olds climbed from 28 to 40 percent between 1995 and 2014. With their lower homeownership rate and later age of first-time home buying, more Asians, Blacks and Hispanics means fewer homeowners among young adults.
Those demographic factors were also at work during the boom times, but their impact was muted by favorable economic conditions. As the economics went south, so too did the homeownership rate of young adults.
“The effect of favorable mortgage terms, affordable housing costs, and increases in income can be stronger drivers of tenure outcomes than socio-demographic characteristics, as evidenced during the housing boom,” concludes the report.
But when both the demographics and the economics put the kibosh on home buying, the report notes, “young adult homeownership rates can fall precipitously, as happened after the collapse of the housing market in 2005.”
The demographic-economic double whammy may stifle the housing market for years to come.
Homeownership Rate of Householders Aged 30-to-34 Falls to Record Low
The homeownership rate of households headed by people aged 30 to 34 fell to an all-time low of 45.8 percent in the first quarter of 2015, according to the Census Bureau. Historically, homeownership became the norm in the 30-to-34 age group – rising above 50 percent. But beginning in 2007, the homeownership rate of 30-to-34-year-olds went into a tailspin. In the second quarter of 2011, the rate fell below 50 percent for the first time. In the past year, the homeownership rate of the age group fell by a steep 1.7 percentage points, suggesting we haven't seen bottom yet.
The new age of first-time home buying is 35 to 39, but even this age group is slipping. The homeownership rate of 35-to-39-year-olds fell to 55.1 percent in the first quarter of 2015 – also a record low. Since peaking in the first quarter of 2007, the homeownership rate of 35-to-39-year-olds has fallen by more than 10 percentage points.
Nationally, the homeownership rate slipped to 63.7 percent in the first quarter of 2015, down from 64.8 percent a year earlier.
– By Cheryl Russell