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Millennials Have Begun to Play Homeownership Catch-Up
Friday, August 12, 2016 6:40 AM

Patrick Simmons, Director Strategic Planning, Economic & Strategic Research Group

Since the onset of the housing bust, bad news has beset the homeownership market. The national homeownership rate has fallen to multi-decade lows, with decreases particularly large among young adults. The homeownership rate of households headed by 25- to 34-year-olds has fallen by about 10 percentage points since the peak of the housing bubble, compared with a decline of roughly 4 points for all households.

Although analysis of homeownership rate change by age group is commonly used to chronicle the housing bust’s breadth and severity and to look for signs of recovery, it provides only limited insight into the dynamic nature of homeownership. Valuable perspective can also be gained by tracking homeownership rate change for birth cohorts—groups of people born during the same period. That is, in addition to comparing the same age group with different people at two points in time, much can also be learned by tracking homeownership rate change for the same group of young people as they grow older and pass from one age group to the next.

A new edition of Housing Insights from Fannie Mae’s Economic & Strategic Research Group adopts this broader perspective, examining young-adult homeownership rate change for both age groups and birth cohorts. The traditional analysis of homeownership rates by age group shows that young-adult homeownership continued to fall during the early years of the housing recovery (2012-2014), albeit at a moderating pace. However, the cohort analysis reveals that homeownership rate gains for Millennials aging through their late twenties and early thirties accelerated significantly during the early housing recovery, a tentative sign of incipient recovery in young-adult homeownership demand.

Greater young-adult homeownership demand could signal growing needs for starter homes, affordable home purchase mortgage products, education and counseling efforts targeted at inexperienced homeowners, and other services and technologies suitable for youthful home buyers. However, tight supply and rapid price gains in the lower tiers of the home sales market are increasingly hampering first-time home buyer affordability, and endangering the budding recovery in young-adult homebuying demand. Mounting affordability challenges at a time when the young-adult homeownership rebound is just beginning highlight the importance of continued industry efforts to provide housing and mortgage products that meet the needs of the growing number of potential young home buyers.

Source:  Fannie Mae