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Growing Diversity, Rising Educational Attainment, and the Future of Young-Adult Homeownership
Monday, June 26, 2017 6:35 AM

New research from the University of Southern California and Fannie Mae

Faltering homeownership rates are a widespread concern, with young adults having experienced particularly large declines. The homeownership rate of those aged 25-44—prime ages for first-time homebuying—has plummeted by 10 percentage points over the past decade. The foreclosure crisis was one obvious cause, while other factors include a slow labor market recovery from the Great Recession, tighter mortgage credit, limited supply of entry-level homes, and long-term social changes such as delayed marriage and childbearing. Given these many contributing factors, policymakers and housing professionals have struggled to define the role of policy in shaping future homeownership rates.

In the latest and final installment of a working paper series, researchers from the University of Southern California, in partnership with Fannie Mae, simulate how future changes in the characteristics of young adults might affect changes in their homeownership rate. The simulations place special emphasis on how increases in racial and ethnic diversity and alternative scenarios for future college education might alter the trajectory of young-adult homeownership.

Key Findings
The results contradict a popular narrative that an increase in racial and ethnic diversity will lead to a decline in the young-adult homeownership rate. In fact, taking into account the recent trend of rising education levels (and associated gains in incomes and wealth), the simulation yields an increase of about 1.5 percentage points in the young-adult homeownership rate over the next two decades, even with the increase in the minority population share.

The simulation also finds that completely closing interracial gaps in education could generate an even larger increase in the young-adult homeownership rate by roughly 2.5 percentage points. And, were interracial gaps in income and wealth to close along with gaps in educational attainment, the simulations suggest that young-adult homeownership rates would increase by 6 to 7 percentage points over the next 20 years.