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Millennial Hunger For Home Ownership May Be Greater Than We Realize

The way we have been measuring millennial demand for homeownership may be been skewed. A report from Fannie Mae and the University of Southern California tackles a new approach that shows millennials are more enthusiastic about home ownership than realized.

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The study analyzed recent data from the Census Bureau’s American Community Survey. What is significant is that two different change-measurement approaches were used in the study — and they yielded dramatically different views on the state of millennial home ownership.

Millennials Can Move the Needle On The Housing Market

The findings are significant for the US housing industry overall as millennials could help end a frustratingly slow housing recovery. “With more than 88 million members, the millennial generation has the sheer bulk needed to propel the housing recovery to a higher level and it now fills the 25-34 year-old age range that traditionally accounts for the most first-time home buyers,” Simmons and Myers wrote.

The Traditional Age-Group Approach

One approach, called the Traditional Age-Group Approach suggests that millennial home ownership demand will continue to slumber. According to the report:

This “age-group” approach compares the cumulative home ownership attainment for different groups of individuals at the same age but at different points in time. Cumulative home ownership attainment at a given age reflects not only a group’s current rate of ascent into home ownership under prevailing economic conditions, but also the legacy of its past pace of advance under sometimes very different economic circumstances. This is certainly the case for Millennials in their 30s, whose current home ownership rate reflects not only recent home-buying activity in a healthy economy, but also earlier housing decisions made amidst one of the worst economic downturns in US history.

The report noted that applying age-group analysis to the Census data reveals no rebound in young-adult home ownership rates despite years of economic recovery.

The problem with this approach, though, is that it confuses recent home purchasing behavior with housing tenure choices made many years ago.

The Cohort Perspective

The report then considers an alternative perspective called cohort analysis, which allowed the researchers to disentangle the current from the past home-buying behavior. They write:

Rather than focusing on cumulative home ownership attainment, cohort analysis tracks increments in the home ownership rate for a group of young people (cohort) as they grow older, advancing from one age group to the next. Home ownership rate increments for different cohorts passing through the same age range, but during different historical periods, can be compared, thus allowing us to determine if recent young-adult home-buying activity has quickened as the economy has improved.

Cohort analysis shows that the pace of young-adult home purchases began to increase during the economic recovery, starting between 2012 and 2014, and then accelerating further through 2016 [see chart below].

As the chart shows, those between ages 28-29 and 30-31 experienced home ownership rate increments during the economic recovery of almost 5 percentage points between 2012 and 2014 and nearly 6 percentage points between 2014 and 2016 [this is represented by the green oval in chart]. These home ownership rate gains were two to four times greater than the gains registered by the two older cohorts passing through the same age range between 2008-2010 and between 2010-2012 [which is represented by the red oval in the chart]. The report concludes that:

 

For every age transition above 22-23 to 24-25, the cohort home ownership rate increases between 2014 and 2016 were significantly greater than the gains registered from either 2008-2010 or 2010-2012.

 

By: Erika Morphy

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