—We expect the homeownership rate to further
close the gap with potential in the years ahead as millennials
continue to make important decisions, such as attaining an
education and, later in life, getting married and having children,
says Chief Economist Mark Fleming—
First American Financial Corporation (NYSE: FAF), a
leading global provider of title insurance, settlement services and
risk solutions for real estate transactions, today released the
fifth annual First American Homeownership Progress Index (HPRI),
which measures how a variety of lifestyle, societal and economic
factors influence homeownership rates over time at national, state
and market levels. It’s available as an interactive tool that can
be tailored to showcase how trends in economic conditions,
education, income, marital status, ethnicity, and family size
impact potential homeownership demand over time across the United
States at national, state and metropolitan area levels.
Chief Economist Analysis: Homeownership Rate Continues to
Underperform Potential
“Ten years after the Great Recession, homeownership remains one
of the main tenets of the American Dream. 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,” said
Mark Fleming, chief economist at First American. “What’s behind the
steady rise since the 2016 low point? The explanation lies in the
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. Close examination of these underlying forces can
provide a more in-depth look into the changes in the homeownership
rate over time,” said Fleming. “Our annual HPRI accounts for the
impact of critical lifestyle, societal and economic trends on the
likelihood of owning a home. Understanding these forces and
tracking how they change over time allows us to measure potential
homeownership demand.
“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.
“For example, in the late 1990s to the early 2000s, potential
homeownership demand peaked above the actual homeownership rate.
The massive Baby Boomer generation was in its prime home-buying
years, driving potential demand up,” said Fleming. “However,
achieving the dream of homeownership may have been restricted at
the time by access to credit or the down payment necessary to
purchase a first home.
“There are a few distinct time periods where the actual
homeownership rate exceeded potential homeownership demand,
according to our HPRI,” said Fleming. “From 1984 to 1986 and again
in 1992, the actual homeownership rate outperformed or equaled the
potential demand, most likely a result of innovations in mortgage
finance, and the economic boom of the 1990s.
“The housing crisis is also an exception to this trend, where
speculation, easy access to credit and exuberance caused the actual
homeownership rate to exceed potential demand as measured by the
HPRI,” said Fleming. “The actual homeownership rate, even while it
was falling, still exceeded potential homeownership demand by
nearly 7 percent in 2010.
“Most recently, in 2018, the homeownership rate underperformed
potential demand by 8.7 percent. When broken down by age group, we
find that the majority of the demand for homeownership in 2018 and
2017 was driven by the millennial generation, those between the
ages of 23 and 37,” said Fleming. “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.”
Millennial Homeownership Demand 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,” said Fleming. “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.
“However, like their predecessors, millennials view
homeownership as an important life goal. In fact, according to a
2019 survey, 84 percent of millennials believe homeownership is
still part of the American Dream,” said Fleming. “Yet, millennials
trail their generational predecessors in the pursuit of
homeownership.
“There is a six-percentage point difference in homeownership
between millennials and Generation X at the same age of 30 years
old,” said Fleming. “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.”
Back to School
“Millennials are officially the most educated generational
cohort in U.S. history – more than 36 percent of millennials have a
bachelor’s degree or higher, compared with 34 percent of Generation
X and 26 percent of Baby Boomers. The share of millennials with
bachelor’s degrees or higher will likely continue to rise, as
younger millennials have yet to graduate,” said Fleming. “Education
takes time and money, which helps explain why millennials are
delaying important lifestyle decisions, such as marriage, having
children or owning a home.
“As educational attainment levels increase, we can expect
homeownership rates will grow, as well. In fact, the importance of
education to homeownership has only increased over time,” said
Fleming. “Our HPRI shows that the impact of education in relation
to homeownership has more than doubled in 20 years. In 1998, the
difference in the homeownership rate between those with a high
school degree and those with a college degree was 2.8 percent. By
2018, this gap had widened to 6.7 percent.
Is the Educational Investment Paying off?
“The short answer is yes. Across generational cohorts,
millennials have the highest incomes when adjusted for inflation.
Comparing millennials with their predecessors at age 37,
inflation-adjusted median household income is $77,000 for
millennials, $72,000 for Generation X and $69,000 for Baby
Boomers,” said Fleming. “Higher income leads to higher house-buying
power. Coupled with today’s 3.8 percent 30-year, fixed-rate
mortgage, 37-year-old millennials can afford $35,000 more home than
Generation X and $52,000 more home than Baby Boomers at the same
age.”
Put a Ring on It?
“Our analysis shows that getting married is one of the strongest
predictors for homeownership. Certainly, the benefit of two incomes
helps to scratch together a down payment,” said Fleming.
“Additionally, homeownership has historically been linked to other
lifestyle decisions that are linked to homeownership, such as
settling down and having kids.
“Millennials, unlike their predecessors, are getting married
much later in life. According to a Census study, 8 in 10 people
were married by the time they turned 30 in the 1970s. Today, the
same level of marriage does not occur until the age of 45,” said
Fleming. “According to analysis of our HPRI, the homeownership rate
in 2018 was 25 percent higher among married couples than other
households.
“The decision to have children also influences the decision to
own. Compared with households with no children, the homeownership
rate in 2018 was 6.3 percent higher for households with one or two
children,” said Fleming. “Millennial lifestyle choices to delay
marriage and children are part of the reason the actual
homeownership rate is lower than potential homeownership
demand.”
Potential Demand Expected to Grow
“The good news is there has been progress. Older millennials are
beginning to age into the key lifestyle decisions that precede
homeownership,” said Fleming. “For example, our analysis shows that
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.
“Millennials’ lifestyle and economic decisions are important
reasons why the homeownership rate remains lower than its
potential, based on our HPRI. However, the gap between potential
and actual homeownership in 2018 narrowed slightly as the growth in
homeownership modestly exceeded the increase in potential demand,”
said Fleming. “We expect the homeownership rate to further close
the gap with potential in the years ahead as millennials continue
to make important decisions, such as attaining an education and,
later in life, getting married and having children. Looking ahead,
as the bulk of millennials turn 30 next year and age into
homeownership, the one question remains: will the housing market
have enough homes for them to buy?”
2018 Homeownership Progress Index
- The First American Homeownership Progress Index (HPRI) showed
that in 2018: Nationally, potential homeownership demand
represented by the HPRI increased 0.66 percent in 2018 compared
with 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).
- The decline 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.
- 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.
2018 Homeownership Progress Index State Highlights
- The five 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).
- The 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).
2018 Homeownership Progress Index Local Market
Highlights
- Among the largest 50 Core Based Statistical Areas (CBSAs), the
five markets 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).
- Among the largest 50 CBSAs, the markets 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).
Next Release
The next release of the First American Homeownership Progress
Index will be posted in June 2020.
Methodology
The methodology statement for the First American Homeownership
Progress Index is available at
http://www.firstam.com/economics/homeownership-progress-index.
Disclaimer
Opinions, estimates, forecasts and other views contained in this
page are those of First American’s Chief Economist, do not
necessarily represent the views of First American or its
management, should not be construed as indicating First American’s
business prospects or expected results, and are subject to change
without notice. Although the First American Economics team attempts
to provide reliable, useful information, it does not guarantee that
the information is accurate, current or suitable for any particular
purpose. © 2019 by First American. Information from this page may
be used with proper attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a
leading provider of title insurance, settlement services and risk
solutions for real estate transactions that traces its heritage
back to 1889. First American also provides title plant management
services; title and other real property records and images;
valuation products and services; home warranty products; property
and casualty insurance; banking, trust and wealth management
services; and other related products and services. With total
revenue of $5.7 billion in 2018, the company offers its products
and services directly and through its agents throughout the United
States and abroad. In 2019, First American was named to the Fortune
100 Best Companies to Work For® list for the fourth consecutive
year. More information about the company can be found at
www.firstam.com.
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Media Contact: Marcus Ginnaty Corporate Communications
First American Financial Corporation (714) 250-3298
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