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Millennials are following other generations
The U.S. Census Bureau reported in July that the homeownership rate has fallen a half a percent since last year, down to 62.9%. It has been 50 years since the U.S. homeownership rate has been this low.
A recent article highlighting a Zillow analysis of home buying potential among renters said, “In an environment where homeownership rates have fallen to 50-year lows, and there’s much talk about ‘millennials not buying homes’, the reasons are varied as to why this is happening. One reason for the increasing popularity of renting has more to do with changes in our economy over the past few years. Jobs are more transient, and people move to where the jobs are and because many are not staying 20 or 30 years at a job as in the past, renting has become a preferred housing solution out of convenience and logic.”
Student loan debt, tight credit boxes, affordability and lower paying jobs have been blamed for making first-time home buyers hesitant, but what if all these reasons are not big factors as previously thought?
The raw data shows that the economy ran in expansion mode for 28 consecutive quarters, with 13 million new jobs created since the end of the great recession, which pushed the unemployment rate down to below 5%.
There are some that don’t buy the common theory of the economic crisis affecting homeownership numbers seven years after the end of the recession.
Jason Furman, chairman of the Council of Economic Advisors, argues in a recent report that while there’s a substantially larger amount of student loan debt collectively, there’s also a larger amount of overall borrowers. Furman notes that more than 40% of student loan borrowers owe less than $10,000.
The Federal Reserve Bank of Cleveland recently determined that borrowers between the ages of 20 and 30 had a debt burden of $351 a month during the second quarter in 2015. The research also notes that 75% of all borrowers in the same age group have student loan payments of $400 or less.
Although there’s a growing inventory problem, especially with housing priced $250,000 and lower, according to First American’s Real House Price Index, home prices, adjusted for income and interest rate changes, are still 39.7% below pre-recession peak prices and 19% less than the they were in 2000.
Rental households has increased 22% since the beginning of the recession or 8.4 million new rental households, while there are 2% less owner-occupied households or 1.5 million fewer during the same period. With a difference of 24 percentage points between the change in the number of homeowners and the number of renters, this is a big deal. Is the homeownership rate so low because there are so many more renters in a group merely going through a typical life cycle, finish school, get employment and obtain rental housing?
Millennials are the biggest demographic group in history and just as previous generations, they’re following a similar track and just as previous generations, they most likely won’t remain renters forever. This dynamic was highlighted in a previous PEMCO Limited article, “Although rents rose 3.6 percent in 2014 and are predicted to increase 3.4 percent above inflation in 2015, more than one-third of U.S. households rent their living spaces. According to the U.S. Census Bureau, all new household growth was driven by renters over the last six years. Millennials, the largest generation, are majority renters; although surveys show that they will eventually become home-owners.”
See Many Millennials Rent, But Keep Home-Ownership on Radar
It’s a possibility that the homeownership rate may further decline, but as more millennial renters decide to become homeowners, we may see a housing boom not seen before.
Sources:
HousingWire. Economist: This is why homeownership hit an all-time low
First American. First American Real House Price Index
PEMCO Realty. High Percentage of Renters Do Not Have Enough Credit and Income to Buy a Home