Rising costs of housing cited as a root of lagging homeownership rates among the young adults

Freddie Mac estimates that the Homeownership rates will likely trail the historical levels through 2025


There is no doubt the cost of housing in California is on an upward surge, which presents the biggest hurdle for the young prospective homebuyers to overcome, this is according to a research done by Freddie Mac. The trend is, home prices, not only in California, but the rest of the nation are rising much faster than the incomes and this trend is projected to continue until 2025. Freddie Mac also notes that financial Headwinds and the societal shifts such as the declining marriage and fertility rates have depressed the homeownership levels among the young adults. The homeownership rates among the people under 35 has significantly fallen to an upheaval 8% since their peak in 2004. Also, Freddie analysis shows that high home prices and rents are the primary reason for this decline in the young homeownership at 49% followed by the fertility and low marriage rates at 22% and a likely combination of the student debt, a preference towards renting as option, borrowing constraints and other factors at 13%.

Freddie Mac predictions examined the economic and the demographic trends from the year 2000 to 2016 to identify the causes behind the 8% decrease in the homeownership rates among the young adults. Based on the findings, Freddie Mac reveals that a more racially diverse population at 12% and the increased migration to the more densely populated metro areas, which of course are expensive and have a suppressed homeownership.

In the last five years, the historically low mortgage rates and the increasingly favorable employment conditions in the country should have favored the young adults into purchasing homes but unfortunately  home prices and the rent growth since the great recession have been too high presenting a barrier for many would-be homebuyers. The condition presently in the market present a wealthy opportune for most of the homeowners but these weaker affordability conditions have led to a missed opportune for the interested homebuyers who are at most, priced out of the market.

Since the financial crisis 2008, the homeownership rates for the young adults between 25-35 years old have fallen significantly and Freddie predicts this trends until 2025. Freddie also predicts that the people currently in that age group and those who will be in that segment in 2025 will remain below the historical averages for the homeownership. The forecast also shows that for those who will be 24-35 years old in 2025, the homeownership rates will be at 36.6%.

The demographics, the housing preferences and the economic conditions will play a major role in the direction that the homeownership will take in the coming years. Assuming that the economic conditions improves, the incomes and the entry-level housing supply increase in a meaningful way, the homeownership rates for young adults could fall out of bounds and exceed what Freddie Mac predicts.

The analysis also show that about 700,000 young adults did not purchase a home between the years 2000-2016 citing inflation-adjusted home prices and increased rents as the reasons behind the lag. In addition to that, the home price-to-income ratio has risen to newer heights which in the long run has depressed the homeownership rates. The effect of this is that, the ratio has increased more of the young adults than the overall population especially those in the metro areas.