The official homeownership rate for just about every demographic in the country has been declining since the eve of the housing bust. And this is particularly true for the youngest potential homeowners under the age of 35, according to census data.
Indeed, homeownership for young adults is now at its lowest level since the Housing Vacancy Survey began collecting this data in 1982. But this trend is a bit deceptive, for reasons of both demographics and methodology. As a result, Trulia chief economist Jed Kolko argues, we may be taking away some of the wrong lessons about where Millennial homeownership may be headed next.
How so? Let’s start with what the Census Bureau’s homeownership rate really captures: the share of all households that own their own home (as oppose to renting it). But as the recession kicked in, many families began to house multiple generations under one roof. Some young adults moved back in with their parents.
Today, that process is reversing. Household formation is increasing. The denominator in the homeownership rate — the number of households in the country — is getting larger. This is particularly true for young adults setting out now on their own. What happens when the number of young adult households that own their home (the numerator) remains relatively steady but the total number of young adult households (the denominator) increases? The homeownership rate goes down.
That’s how the homeownership rate can decline even as the number of young adults buying a home increases.
In contrast, calculating the homeownership rate as the number of young households that own their home relative to all 18-to-34-year-olds — not just all 18-to-34-year-old households — shows young homeownership ticking back up in the past year. That is because that calculation includes the fact that the number of young adults heading their own households is simultaneously rising.
Now, Kolko’s “true” homeownership rate still is startlingly low compared with 1983. By his analysis, most of that drop over the past two decades can be explained by demographic shifts. The share of 18-to-34-year-olds in America who are married has been falling, and young adults are having children later, These milestones accompany homeownership.
Today’s 18-to-34-year-olds look and behave differently as potential homeowners from 18-to-34-year-olds in 1983 in ways unrelated to the recession Here’s Kolko’s takeaway:
“In short: although the share of young adults who actually own a home remains considerably lower today (even with the uptick in 2013) than at any time since 1983, it is roughly at late 1990s levels after taking demographic shifts into account. Unless those long-term demographic trends reverse, there might be little room for young-adult homeownership to increase.”
