One of the biggest obstacles to this housing recovery has been that the millennials have been increasingly living at home with their parents instead of forming new households.
The latest Census data shows that homeownership rates continue to fall for young adult,s and the National Association of Realtors showed that share of first-time home buyers is down too.
But Jed Kolko, chief economist at Trulia disagrees.
“The official homeownership rate published by the Census gives a misleading picture of homeownership trends,” he writes in a new report. “In fact, homeownership among young adults is both on the rise and not too far off from where demographics say it should be.”
Kolko looks at what he argues is “true” homeownership, “which equals the number of owner-occupied households divided by the number of all adults; in contrast, the published homeownership rate equals the number of owner-occupied households divided by the number of all households.” Kolko “accounts for changes in household formation to get a true measure of homeownership,” and “adjusts for longer-term demographic shifts to compare homeownership levels today with pre-bubble levels.”
He argues that true home ownership bottomed in 2012, and has climbed from 2012 to 2013.
“Once we adjust for the huge demographic shifts among young adults — far fewer young adults are married or have kids than two or three decades ago — homeownership in 2013 was roughly at late-1990s levels.”
What’s more, certain demographic trends have changed homeownership rates. The per cent of 18-34 year olds that were married fell from 47% in 1983, to 30% in 2013, the per cent that have children is also falling. From Kolko:
“Pick a baseline time period for a regression analysis — such as the years just before the bubble started (1994-1999) — and estimate what would have happened to homeownership if the likelihood of owning a home for someone with particular demographics in the baseline time period stayed constant and were applied to the actual demographic shifts that really happened. …This “demographic baseline” shows that demographics alone would have predicted a steady decline in the true homeownership rate over the past two decades, from 16.0% in 1994 to 13.1% in 2013 — a drop of 18%.”
So what does this all this mean? Despite the rise in homeownership among young adults in 2013, there needs to be a long-term reversal in demographic trends for homeownership to rise in this cohort. But it also implies that “millennials are roughly as likely to own homes as people with similar demographics two decades ago.”
“The real missing homeowners are the middle-aged.”