First American: Homeownership Rate Remains ‘Below Potential’
First American Financial Corp., Santa Ana, Calif., said shifting demographics in the wake of recovery from the Great Recession have kept the U.S. homeownership below its potential.
The company’s annual Homeownership Progress Index said nationally, potential homeownership demand increased 0.66 percent in 2018 from 2017, based on changes in the underlying lifestyle, societal and economic data. Factors that increased potential homeownership demand included a decline in the unemployment rate (+0.84 percent), income growth (+0.11 percent), rising educational attainment (+0.10 percent) and the higher share of married households (+0.02 percent).
Conversely, First American cited declines in the number of children per household (-0.03 percent) and the increase in the 30-year, fixed-rate mortgage rate (-0.38 percent) were factors that decreased potential homeownership demand.
The report said homeownership demand increased from 2017 to 2018 in 33 of the 50 metropolitan areas tracked by First American, as demographic and economic trends in these cities raised the likelihood of homeownership.
First American Chief Economist Mark Fleming noted amid the recovery from the housing crisis, the homeownership rate hit a generational low of 63 percent in 2016, but it has been steadily rising since. He said the 2016 low point can be attributed to shifts in a mix of demographic and economic factors.
“The homeownership rate is influenced by shifts in underlying demographic and economic factors, as well as housing market conditions,” Fleming said. “Historically, potential homeownership demand as measured by the HPRI has mostly outpaced the actual homeownership rate, meaning the actual homeownership rate should have been higher based on the lifestyle, societal and economic trends influencing the demand for homeownership,” said Fleming. “This was largely due to demographic trends as Baby Boomers settled down to form households of their own.”
Fleming said as of 2018, the homeownership rate underperformed potential demand by 8.7 percent. When broken down by age group, the report said the majority of demand for homeownership in 2018 and 2017 was driven by the Millennial generation. “Even though they drove the bulk of actual homeownership demand in 2018, millennials and their lifestyle choices may explain why the homeownership rate remained below potential demand,” he said.
Fleming said Millennial homeownership demand is “just beginning. Millennials are the largest generational group in the history of the U.S., and that’s not the only thing that separates them from their generational predecessors,” he said. “Millennials are more diverse, more educated and tend to marry later in life than previous generations. Many Millennials have prioritized furthering their education, thus delaying getting married and having children, which are critical lifestyle triggers to buying a first home.”
Despite these factors, Fleming said, Millennials view homeownership as an important life goal. “There is a six-percentage point difference in homeownership between millennials and Generation X at the same age of 30 years old,” he said. “But, the bulk of millennials have yet to turn 30, which signals higher potential homeownership demand may be on the horizon. The largest group of millennials by birth year will turn 30 in 2020, entering their prime home-buying years.”
The good news, Fleming said, is that Millennials are making progress. “Older millennials are beginning to age into the key lifestyle decisions that precede homeownership,” he said. “The average marital rates for the millennial generation in 2018 increased 2.4 percent compared with one year ago, which contributed to the positive gain in potential homeownership demand, as well as to the increase in the actual homeownership rate in 2018.”
Other report findings:
–States with the greatest year-over-year increase in potential homeownership demand are Delaware (+2.0 percent), Washington, D.C. (+1.8 percent), Tennessee (+1.6 percent), Wisconsin (+1.3 percent) and New Jersey (+1.3 percent).
–States with the greatest year-over-year decrease in potential homeownership demand are Maine (-0.5 percent), North Carolina (-0.5 percent), North Dakota (-0.3 percent), Connecticut (-0.3 percent) and Idaho (-0.2 percent).
–Metros with the greatest year-over-year increase in potential homeownership demand are Buffalo, N.Y. (+4.6 percent), Milwaukee (+3.5 percent), Cincinnati (+2.6 percent), Columbus, Ohio (+2.4 percent) and San Jose, Calif. (+2.3 percent).
–Metros with the greatest year-over-year decrease in potential homeownership demand are Indianapolis (-3.0 percent), Raleigh, N.C. (-1.3 percent), Birmingham, Ala. (-1.3 percent), Kansas City, Mo. (-1.0 percent) and Nashville, Tenn. (-1.0 percent).
