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Real Estate

Millennial homeownership rates dropped in past decade

Fannie Mae explains why

Homeownership rates are resting near their 50-year lows, and homeownership among young adults experienced large declines over the past decade.

The homeownership rate of young adults aged 25 to 44, the prime ages for first-time home buying, plummeted by 10 percentage points in the past decade, according to a new study from Fannie Mae and the University of Southern California.

The study pointed out some of the causes for the low homeownership rate among Millennials. Those factors include the foreclosure crisis, a slow labor market recovery from the Great Recession, tighter mortgage credit, limited supply of entry-level homes and long-term social changes such as delayed marriage and childbearing.

Due to the many contributing factors, policy makers and housing professionals struggle to define the role of housing policy in shaping future homeownership rates, according to Fannie Mae.

The University of Southern California simulated how future changes in the characteristics of young adults might affect changes in their homeownership rate. The simulations place special emphasis on how increases in racial and ethnic diversity and alternative scenarios for future college education might alter the trajectory of young-adult homeownership.

The study found that, contrary to the popular narrative, an increase in racial and ethnic diversity will not lead to a decline in homeownership rate. In fact, the recent trends of rising education levels and its associated gains in incomes and wealth could cause an increase of about 1.5 percentage points in the Millennial homeownership rate over the next two decades.

The study also found that completely closing interracial gaps in education could generate an even larger increase in the Millennial homeownership rate of about 2.5 percentage points.

Were interracial gaps in income and wealth to close along with the gap in education attainment, the study shows Millennial homeownership rates would increase by six to seven percentage points over the next 20 years.

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