Thursday, February 6, 2020

Housing: Part 361 - Homeownership by age doesn't show much recovery.

Last quarter, I posted an update on homeownership rates at Mercatus.  Recently updates for the 4th quarter came out from the Census Bureau.  This is noisy data, so it's tough to get much out of quarter-to-quarter changes.  You sort of need to wait for trends to be established.

For what it's worth, the homeownership rate increased slightly this quarter.  It could be the beginning of a trend, but for ages above 44, homeownership has been pretty flat for a while.

One way to look at this is how homeownership grows with each cohort.  For instance, comparing the homeownership rate of 35-44 year-olds from ten years ago to the rate of 45-54 year-olds today can tell us how many of that age cohort have become homeowners over the past decade.  Here is a chart for 45-54 year-olds and 55-64 year-olds, based on annual data the Census Bureau has published since 1982.

The good news is that, within age cohorts, the rate of new buyers has begun to recover.  The net effect on the homeownership rate for those age groups is flat, because while there are an increasing number of new owners, the homeownership rate of those cohorts 10 years ago was dropping like a stone.

This suggests that the homeownership rates of the middle-aged groups will remain flat at their current low levels for a while.  The housing bust created a big, gaping wound in the life plans of a generation or two of Americans, and it looks like that wound will continue to be visible for a while.

Looking at the next graph, which just shows the annual homeownership rate of each age group since 1982 highlights something interesting.  In 1992, when only 5% and 3% of 45-54 and 55-64 year-olds became owners over the course of a decade, that is because about 70% of 35-44 year-olds had already been owners in 1982.  So, in 2004, after a decade where these cohorts really increased their rate of buying as they got older, their total homeownership rate wasn't that different than it had been in 1992.  By retirement, about 80% of households tended to become homeowners, and the difference over time was that some generations became owners earlier than others.  This is a point I made in "Shut Out".  It isn't really the case that there were suddenly a bunch of "unqualified" buyers in the late 1990s and early 2000s buying homes.  It was really just a matter of households buying homes they would have eventually bought anyway, but just buying them a couple years earlier. A return to the homeownership trends of the early 80s.

So, the thing is, looking back at the previous graph of the two cohorts, the ownership rate of 35-44 year-olds today is only about 60%.  Way below any previous range.  For 80% of them to become homeowners by the time they retire, as their parents and grandparents had, their homeownership rate will need to increase by 20% over the next couple of decades.  That's a rate of rising ownership for 45 to 64 year-olds that is much higher than the peak rates of 2004.

The good news is that those cohorts are finally buying again.  But, the rate of buying required to make up for the lost decade is sizeable.

7 comments:

  1. Excellent post.

    We may see Trump versus Sanders in 2020.

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  2. The voters want a socialist or a populist in the White House. Sanders v. Trump, at lest that is how it looks now.

    Gee, I wonder why?

    I think a few more paeans to income stratification will set those voters straight. Let us rhapsodize about open borders for immigrants desperate for a job. And the US can prevail in the Mideast! And globally, everywhere!

    When US factories shut down, that means consumers benefit! Housing supply is not a problem, and rent control is bad.

    So, a one-bedroom apartment in Los Angeles rents for $2,350 a month. Data from the annual Milliman Medical Index shows the most common health care plan for a family of four costs on average $28,166 in 2018.

    The establishment is lucky to get Trump. It could be a lot worse. Sadly, I think eventually it will get worse.

    The right-wing does not want to cut the employment-class in on the deal (not even through market mechanisms such as abolishing property zoning, and cutting taxes on wages, and sensible border controls), and the left-wing is obsessed with identity politics and public "solutions" that could make matters worse.

    Hope for the best....prepare for?







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