We’ve talked quite a bit lately about homeownership rates in America. To recap, this month marks the 20-year anniversary of Bill Clinton’s 100-point National Homeownership Strategy which sought to raise homeownership rates in America to record levels — and it did. Unfortunately, the foundation upon which this miracle was built began to crack in mid-2007 and by the summer of 2008, the two entities which had for years underwritten the American Dream were in receivership.
After the crisis, PE swooped in to snap up foreclosed properties and more recently, the largest firms have set about loaning money to home flippers and aspiring landlords. Meanwhile, the housing collapse turned a nation of owners into a nation of renters and demand for rentals has of course driven up rents, making it more difficult for prospective home buyers to save enough for a down payment.
All of this is cast against a subpar (or perhaps “non-existent” is the better term) economic recovery wherein weak demand has curtailed spending and investment, leading directly to lackluster wage growth. This of course, makes it still more difficult for would-be buyers to make a down payment and indeed it says quite a bit about the state of the economy when homeownership rates continue to hit multi-decade lows even as Fannie and Freddie are now backing loans with down payments as low as 3% while FHA has cut premiums at the same time.
If you’re a millennial, the situation is even more desperate. As we’ve documented extensively, new graduates are having a difficult time finding jobs that are commensurate with their education. College degrees have become so commonplace that they have largely ceased to differentiate candidates from one another and on top of that, many young job seekers are discovering that their $35,000 educations did not provide them with the skills sets employers are looking for. Speaking of $35,000 educations, student loan debt is perhaps the biggest impediment to homeownership for young Americans.
Combine a 14% U-6 unemployment rate for 18-29 year olds with soaring rents and a housing market that’s pricing out young adults in many of the nation’s most desirable locales and you have the recipe for historically low homeownership rates for millenials. A new study by The Urban Institute has more on homeownership by age group:
For 30- to 34-year-olds ... homeownership rose from 26 percent in 1940 to 56 percent in 1960 and continued climbing to 61 percent in 1980. The homeownership rate for adults in their early 30s then declined to 53 percent in the 1980s, grew by 1 percentage point between 1980 and 2007, and plummeted to 44 percent in 2013. Given the parallel decline in homeownership for 25- to 29-year-olds, it is unclear whether working-age Americans will ever regain 1980’s peak homeownership rate.
Though the economy is solidly recovering, the mortgage credit regime remains unresolved and credit tight. The millennial generation is now ages 20 to 35, still mostly at the beginning of their delayed transition into headship and homeownership. It is a diverse generation racially and by national origin.
Millennials also have very large inequalities in income, educational backgrounds, and access to resources from parents and grandparents. These uncertainties and disparities make it difficult to project with certainty how millennials will transition into housing markets.
The report goes on to project declining homeownership rates for working age adults all the way through 2030...
...and the trends are consistent across borrowers…
The Urban Institute offers some explanations for the above which should sound quite familiar to regular readers:
Why will the overall homeownership rate continue to fall in 2020 and 2030? Possible contributors include the following:
Hispanics and blacks have lower homeownership rates than whites, and both groups are growing as shares of the population. But changes in racial/ethnic and age composition alone do not account for the drop in the homeownership rate..
Real wages have been very flat since 1996, and have actually declined among adults ages 25–34. This stagnation makes it much harder for people at any age, particularly the young, to save enough for down payments. Even for young adults with good jobs, low vacancy rates and high rents make it more difficult to save.
Student loan debt has increased from about $300 billion in 2003 to over $1.3 trillion in 2014.
In sum, a combination of demographics, flat wage growth, and student debt are conspiring to impede homeownership for young adults.
Lower homeownership rates create demand for rentals which in turn drives up the cost of renting, squeezing household balance sheets further and making it still more difficult to afford a down payment, which leads to still more demand for rentals, still higher rents, and so on and so forth.
With tuition rising and the US economy stalling out (adjustments for "residual seasonality" notwithstanding), it's not entirely clear how these trends will reverse themselves over the medium-term and indeed, if the projections shown above are any indication, this situation is likely to persist for decades to come.