Future Homeownership Demand ‘Solid' As Millennials Shift Gears

Mike Sorohan msorohan@mba.org

August 22, 2017

The U.S. homeownership rate, which fell in 2014 to a 20-year low, is poised to recover some in the next few years, buoyed by positive underlying fundamentals, said First American Financial Corp., Santa Ana, Calif.

The company's annual Homeownership Progress Index noted despite the homeownership rate falling under 64 percent in 2014, the lowest level since 1994, after peaking the previous decade at a record 69 percent. Since then, despite some volatility, First American Chief Economist Mark Fleming said the Millennial generation is poised to boost homeownership over the next several years, noting increasing educational attainment indicates prospect for higher income--and subsequently, homeownership demand.

"Even as Millennials continued to delay marriage and family formation and pursue higher education levels, the Homeownership Progress Index only declined moderately from 2015 to 2016," Fleming said. "Yet, the prospect for future homeownership demand looks hopeful, as more households increase their educational attainment level and thus their prospect for higher income."

The Homeownership Progress Index measures how a variety of lifestyle, societal and economic factors influence homeownership rates over time at national, state and market levels.

Fleming noted even as Millennials delayed marriage and family formation and went to school, the Homeownership Progress Index declined only moderately from 2015 to 2016.

"Small changes in potential homeownership demand hide the large amount of variation in markets across the country," Fleming said. "The underlying factors that the Homeownership Progress Index accounts for can vary substantially by region of the country and market. Regions or markets with stronger local economies and that can attract increasingly educated Millennial households will have stronger homeownership demand in the future."

The report said nationally, potential homeownership demand declined by 0.4 percent in 2016 compared to 2015 based on changes in the underlying lifestyle, societal and economic data. Factors that increased potential homeownership demand included income growth (+0.02 percent) and rising educational attainment (+0.06 percent), which reflects the influence of Millennial behavior on homeownership. Declines in the share of married households (-0.07 percent) and the number of children per household (-0.16) were factors that decreased potential homeownership demand.

Homeownership demand increased from 2015 to 2016 in 21 of the 50 metropolitan areas tracked by First American, as demographic and economic trends in these cities raised the likelihood of homeownership. Half of the top 10 markets for year-over-year growth in potential homeownership demand are in either California or Texas, while eight of the bottom 10 markets are on the East Coast or in the Midwest."

"Changing demographic and economic factors either increase or decrease someone's potential to be a homeowner. For example, increasing marital rates, household size, educational attainment, income and improving economic conditions all increase potential demand for homeownership," Fleming said.

Fleming said potential homeownership demand has decreased 6 percent from the pre-recession peak, and is at the same level as it was in 1990, 27 years ago.

The report said states with the greatest year-over-year increase in potential homeownership demand are Nevada (+2.1 percent), Louisiana (+1.5 percent), Kentucky (+1.4 percent), Idaho (+1.4 percent) and Ohio (+0.8 percent). States with the greatest year-over-year decrease in potential homeownership demand are Delaware (-3.3 percent), Maryland (-2.3 percent), Oregon (-2.3 percent), Rhode Island (-2.2 percent) and Alabama (-2.2 percent).

Among top metro areas, markets with the greatest year-over-year increase in potential homeownership demand are San Jose, Calif. (+4.7 percent), Jacksonville, Fla. (+3.6 percent), Memphis, Tenn. (+2.9 percent), Sacramento, Calif. (+2.7 percent), and San Antonio, Texas (+2.6 percent). Markets with the greatest year-over-year decrease in potential homeownership demand are Birmingham, Ala. (-4.2 percent), Richmond, Va. (-3.3 percent), Cleveland (-3.0 percent), Milwaukee (-3.0 percent), and Buffalo, N.Y. (-2.9 percent).

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