It is no new story that young Americans are putting off home buying until later in life. New data from the U.S. Census Bureau, however, show the rate of homeownership for those in the millennial generation has fallen to the lowest level in recently recorded history.
In the first quarter of 2014, homeownership for Americans 35 and under declined to 36.2 percent, down from 36.8 percent in 2013 and the lowest on record since the census's Housing Vacancy Survey began tabulating homeownership by age in 1982. Homeownership for all ages dropped to 64.8 percent, the lowest level since 1995, a report this week showed.
Mortgage rates are at historical lows, yet rising home prices and tightened mortgage standards, combined with still-challenging state of employment and the fact that millennials are paying off huge amounts of student debt, have discouraged many young Americans that otherwise would be buying homes, according to Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C.
“The labor market for younger people remains pretty bad. Obviously you’re worse off without a college degree, but for people with college degrees, if they have a regular job, often it’s not paying very well and often they are jobs that pay just as well for people who have just a high school degree,” he said. “They also have a lot of debt. So it’s not surprising that people in their late 20s or early 30s are less likely to buy a home than what might have been the case 20 or 30 years ago.
Recent job market statistics underscore the tough prospects for young Americans. The unemployment rate of those ages 20-24 was 12.4 percent as of March 2014, according to data from the Bureau of Labor Statistics, compared with a current national average unemployment rate of 6.7 percent. For Americans 25-34 years old, the unemployment rate was 7 percent.
The home owning decline for young Americans was led by those in the 25-29 age group, for which ownership was 33.3 percent; and those in the 30-34 age group, for which ownership was 47.5 percent. Both of those rates were the lowest in the survey’s 32-year history as well. For Americans under 25, ownership was at 21.5 percent, the lowest level since 1999.
The S&P/Case-Shiller index of property values showed Tuesday home prices in 20 U.S. cities increased 12.9 percent during the 12-month period that ended in February, after rising 13.2 in the 12-month period ending in January. In the last month, prices were up in 19 of the 20 cities surveyed and were up annually in all 20 cities, making affordability even more difficult for young Americans, who are often first-time homebuyers.
Furthermore, household formations are lower than they have been in recent years. According to census data, from 1997 to 2007, 1.2 million households were formed each year. Over the last five years, the average rate of household formation has been halved to about 600,000 per year.
“Those stories you hear about people in their 20s or early 30s living with mom and dad, those aren’t just stories and if people don’t move out, they’re not going to buy a house again because we’re still in the aftereffects of the worst financial crisis in 75 years,” said David Wessel, senior fellow of economic studies at the Brookings Institution in Washington, D.C.
In March, home formations advanced 566,000 from a low of 142,000 in December, according to the Census Bureau.
“That's a fairly notable turnaround. Extrapolating the three month trend points to roughly 1.25 million households formed this year,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York, in a research note. “It's hard to see why that is bad for housing demand.”
Wessel said the decline in ownership among young people underscores a stark contrast between generations of Americans, and that it will be a while before property purchasing picks up for millennials.
“The notion that I grew up as a baby boomer, that the best investment you could make was to buy a house because it would always go up, has been shattered,” Wessel said. “As the economy improves, as more people get jobs and as house prices continue to increase and as the banks rebuild their financial strength, it should get easier to buy a house, but it’s going to be a long time before it looks anything like it did in 2006.”