Potential homeownership demand in 2018 increased by just 0.66% when compared to 2017, but the homeownership rate underperformed potential demand by 8.7%, according to the First American Homeownership Progress Index (HPRI).
“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 First American Chief Economist Mark Fleming.
The HPRI reported declines in unemployment rates, income growth, rising education attainment, and a higher share of married households all aided growth in potential homeownership.
Factors that contributed to the decline of homeownership demand, though, included the number of children per household, and an increase in the 30-year fixed rate mortgages.
“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 added that there were a few distinct periods where the homeownership rate exceeded potential homeownership demand, according to the HPRI.
“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,” Fleming said. “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% in 2010.”
The group mostly driving demand for homeownership in 2017 and 2018 was millennials (ages between 23-37). Fleming, though, added the lifestyle choices of millennials can help explain why the homeownership rate remained below potential demand.
“Millennials are more diverse, more educated, and tend to marry later in life than previous generations,” Fleming said. “Many millennials have prioritized furthering their education, thus delaying getting married and having children, which are critical lifestyle triggers to buying a first home.”