The homeownership rate among young American adults should have been rising faster than it has but there are some key reasons why they are lagging.
An analysis from Freddie Mac considered data on economic and demographic trends from 2000 to 2016 and concluded that there is something that is subduing the homeownership rate more than declining marriage and fertility rates.
And that is the rising cost of housing compared to incomes.
In fact, rising rents and home prices have more than double the impact on homeownership rates of young Americans than lower marriage and fertility rates (49% vs 22%).
Other factors include a combination of student debt, preferring to rent, borrowing constraints and other factors (13%); a younger, more diverse population (12%); and migration to more densely-populated metros which tend to be more expensive (11%).
“Historically low mortgage rates and increasingly favorable employment conditions should have generated a far greater number of home purchases by young adults, especially in the last five years,” said Sam Khater, Freddie Mac’s chief economist. “Unfortunately, home-price and rent growth above incomes – driven primarily by a severe shortage of housing supply – have been too high of a hurdle for many would-be buyers to clear.”
He added that being priced out of the housing market means a missed opportunity for young buyers at a time when housing wealth is growing for most owners.
Things are set to improve
Khater says that things are looking better in the coming years with the young adults homeownership rate rising by 2015 for those aged 25-34 in 2016; and those who will be that age in 2025.
However, it appears that even after improvement, rates will remain below historic normal levels.
“Demographics, housing preferences and economic conditions will all play a role in the direction of homeownership in coming years,” added Khater. “If economic conditions improve, and incomes and entry-level housing supply increase in a meaningful way, homeownership rates for today and tomorrow’s young adults could exceed our current projections.”
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