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The Shifting Determinants of Young-Adult Homeownership Before and After the Great Recession
Friday, April 14, 2017 6:25 AM

From Fannie Mae's Perspectives

The Great Recession and housing bust dramatically altered the course of U.S. housing and mortgage markets. After the recession, depressed residential construction, falling home prices, tight mortgage credit, and retreating homeownership replaced the ebullient conditions of the decade-long housing boom. A sharp retrenchment in the homeownership rates of young adults is a well-documented example of the post-recession reversals, but less well understood is how the economic downturn may have altered the relationships among young-adult homeownership attainment, household demographic and economic characteristics, and local housing market conditions.

In the most recent report from their ongoing study of young-adult homeownership, University of Southern California researchers Dowell Myers, Gary Painter, Julie Zissimopoulos, Hyojung Lee, and Johanna Thunell explore the effects of young adults’ race, education, income, and wealth on their homeownership attainment in the pre- and post-recession periods, independent of the socioeconomic status of their parents.

The authors extend their prior work not only by examining how relationships have changed over time, but also by analyzing additional potentially contributing factors to changes in young-adult homeownership attainment pre- and post-recession, including presence of children in the household, average homeownership rates in the areas where young adults and their parents live, and the relative cost of owning compared to renting in the young adult’s residential location.

Not surprisingly, the authors find that income, wealth, and family status are key determinants of homeownership attainment for young adults aged 25 to 34 both before and after the Great Recession and that local housing market conditions are also important in both periods.

They also find that, all else being equal, non-Hispanic blacks are less likely to be homeowners than non-Hispanic whites before the recession, and that this relationship persists to a similar degree after the recession. However, after controlling for other factors, the authors find no statistical difference in the likelihood of homeownership between Hispanics and whites in either period. This somewhat surprising result might be attributable to the particular characteristics of the study’s data source, which does not represent the entire Hispanic population. 

Perhaps the most interesting finding of the study is that educational attainment was not associated with homeownership status before the Great Recession, but having a college degree increased the likelihood of homeownership by 9 percentage points after the recession, even after controlling for other characteristics including income and wealth. The positive association between educational attainment and homeownership in the post-recession years was found for blacks and non-Hispanic whites but not Hispanics. 

The authors offer several hypotheses that might explain the increasing importance of education for young-adult homeownership attainment after the recession. Education may be a proxy for permanent income and employment stability during economic downturns and, all else being equal, may have become increasingly important in the post-recession period with the tightening of credit markets. In other words, lenders may have become more sensitive post-crisis to applicants’ employment stability and earnings history, which are correlated with educational attainment.

Another potential explanation is that education proxies for financial literacy, including a better understanding of the home-buying and mortgage-lending processes, which might have become increasingly important in the depressed home sales market and tight credit environment of the post-recession period.

Better understanding the causal mechanisms through which education has become more important to the homeownership prospects of young adults should be a goal for future research. If future research can confirm the findings of the current study and present causal evidence of the relationship between education and homeownership, then policies to increase attainment of a college education, especially for groups experiencing past disparities, could prove valuable for promoting achievement of homeownership in the challenging post-recession economic and housing climate.

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