Upper-Income, Educated, Married with Children, and Still Not Buying: Declining Homeownership

Homeownership among young adults fell sharply during the housing bust, accelerating a long-term trend that saw the homeownership rate of householders under age 35 decline by nearly 11 percentage points between 1980 and 2012. This is compared with a drop in the overall homeownership rate of less than 1 percentage point during the same period. Recent research suggests that long-running social and demographic shifts, including delayed marriage and child bearing, and increased racial and ethnic diversity among young adults, account for much of the decrease. Short-term cyclical changes, such as the recession-induced rise in unemployment and decline in real household incomes among young adults, have hastened the pace of homeownership decline in recent years.

A new edition of Housing Insights from Fannie Mae’s Economic & Strategic Research Group shows that homeownership rates have fallen substantially among young adults even after controlling for key demographic, social, and economic attributes. It is true that long-term demographic and social change and the recent economic downturn contributed to young adults’ declining homeownership. However, these factors do not fully explain the decline in homeownership rates. Specifically, Housing Insights shows that the homeownership rate of "prime" first-time home buying candidates – upper-income households with householders in their early 30s who have college educations and are married with children – fell by 8.6 percentage points between 2006 and 2012, compared with a 3.4 percentage point decline in the overall homeownership rate during the same period. The homeownership rate among prime first-time home buying candidates not only has fallen below what was likely an unsustainable level at the peak of the housing bubble, but it also is now substantially lower than in 2000, before the widespread easing of lending terms that accompanied the mortgage credit boom. The analysis also shows that the homeownership rate dropped for prime first-time home buying candidates who are non-Hispanic white alone.

These findings do not dismiss long-run demographic and social shifts and short-run macroeconomic change as important factors shaping homeownership trends among young adults. Rather, the decline in homeownership among prime first-time home buying candidates suggests that other factors, such as the rolling back of loose mortgage lending standards from the housing boom, the recent rash of foreclosures, and uncertainty regarding future incomes and house prices also might be suppressing young homeownership.

To learn more about these findings, read our latest edition of Housing Insights.

Patrick Simmons
Director, Strategic Planning
Economic & Strategic Research Group

August 18, 2014

The author thanks Orawin Velz, Gerry Flood, Doug Duncan, Mark Palim, and Tom Seidenstein for valuable comments in the creation of this commentary. Of course, all errors and omissions remain the responsibility of the author.

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