Effect of Changing Demographics on Young Adult Homeownership Rates

Changing socio-demographic characteristics of young adult households – those with householders ages 25 to 34 – are having an impact on their propensities for homeownership. Increases in the share of minority and unmarried householders are placing downward pressure on homeownership rates for this group, while at the same time higher levels of income and educational attainment are providing a boost. But events in housing markets over the last twenty years have masked these effects, first by making homeownership more attractive and attainable in the years leading up to the Great Recession, thus pushing homeownership rates up, then by lowering them after 2005 as constraints on credit and increasingly poor economic conditions inhibited home purchases by young adults. Untangling the combined effect of these trends requires analyses that can decompose demographic trends from macro and micro market conditions, to isolate the effects that specific changes in characteristics have had on young adult homeownership rates over time. This paper describes such an analysis based on econometric methods that estimate the expected change in homeownership over time due to socio-demographic factors, and finds that absent the boom and bust in housing markets over the last two decades young adults would likely have lowered their homeownership rates by over 5 percentage points, with much of that decline caused by changes in marital and family status. It concludes with some commentary on the implications of these findings for the homeownership tendencies of young adults going forward. Introduction The housing boom and bust of the last twenty years has produced some dramatic swings in homeownership rates. Arguably, one of the groups most affected are young adult households (with householders ages 25 to 34), who during the boom experienced the largest increase of any age group in homeownership rates, followed by the greatest decline during the housing market downturn. Their homeownership rate rose from 45 percent in 1995 to 50 percent by 2005. After reaching that peak, however, the rate declined to 40 percent by 2014 (Figure 1). Figure 1: Homeownership Rates by Age, 1995-2014 Source: Tabulations of the 1995-2014 Current Population Survey. The primary cause of this rise and fall in young adult homeownership rates over this period was the extraordinary conditions in the market for homes and home mortgages. The late 1990s and early 2000s saw an unprecedented boom in the national economy, which elevated incomes and house prices, making homeownership both more attractive and more attainable. Coupled with innovations in mortgage markets that made financing home purchases easier for more households, these changes encouraged more households to buy than might have otherwise done so. As a result, homeownership rates rose to record levels by the mid-2000s. Soon after, 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 65-74 55-64 45-54 35-44 25-34