One of the most nagging issues in the housing industry since the recession has been the dearth of young homeowners. And the news is staying bad for now.
According to Fannie Mae, the national homeownership rate of households headed by 25- to 34-year-olds has fallen by about 10 percentage points, to 37 percent, since the peak of the housing bubble in 2006. This drop-off in younger buyers leads a generally down homeownership rate overall. In fact, Fannie Mae reported Wednesday, national homeownership rates have hit multi-decade lows, with a decline of roughly 4 points over the same time period.
The young-adult homeownership decline has also been linked with several housing market shifts, including low shares of first-time home buyers and suppressed starter home construction, that have contributed to housing’s glacial recovery. The trouble is, where housing has recovered, younger buyers face a major obstacle in how much homes cost.
“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,” said Patrick Simmons, director of Fannie Mae’s Strategic Planning Economic & Strategic Research Group. “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.”
Simmons added that “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.”
Encouragingly, Fannie Mae reported, the homeownership attainment gaps millennials face “are not immutable.” millennials can catch up with prior generations as economic and housing market conditions improve, and indeed young adult homeownership attainment accelerated between 2012 and 2014. This is “particularly notable, given that several factors weighed against a homeownership rebound during the early housing recovery,” such as tight job markets and credit restrictions, the report stated.
But while jobs are picking up and credit is loosening, millennials still face a daunting task in buying homes; and the housing economy needs millennials to be able to afford homes, the report stated.