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July 2015

Homeownership among young adults drops 10 points after reaching record levels

Homeownership rates among young adult households rose to record levels in the mid-2000s (to 50 percent), but the economic downturn and changing demographics reversed that trend, resulting in a 10-point drop a decade later.

Understanding what drives trends in home purchasing tendencies among this significant segment is important to predicting and preparing for their expectations, according to research by the Joint Center for Housing Studies at Harvard University.

A study published earlier this year by JCHS analyzed the changes among householders ages 25 to 34, concluding the dramatic rise and fall in homeownership rates are mostly attributable to economic and market conditions, "with a smaller role played by changing socio-demographic characteristics."

Rachel Bogardus Drew, author of the report, isolated various factors contributing to the drop and noted implications for homeownership tendencies among future segments of young adults.

Lower rates of marriage and family formation, along with higher shares of young adults living in central cities (where housing choices skew to rentals) are putting downward pressure on homeownership rates. The JCHS report notes young adults represent the majority of first time homebuyers, despite being a minority of households.

Citing Census data Drew states "The current and rising generation of young adults is also poised to be the largest to come of age since the Baby Boomers in the 1970s and '80s."  Not only will their numbers influence near-term housing demand, but they'll also drive trends in the types and locations of housing that will be built given differing tastes and preferences compared to prior generations. As an example, surveys show this segment increasingly prefers smaller homes close to urban amenities, rather than large suburban homes favored by their Boomer parents.

Drew also analyzed race/ethnicity and nativity in the composition of young adult households. Her research revealed a "striking change" in the share of minorities within the young households segment, rising from 28 percent in 1995 to 41 percent in 2014. Young Hispanic householders accounted for the biggest component, rising from 11 to 18 percent of households.

Researchers found the decline in the share of married couples (both currently and formerly married) had the greatest effect on young adult homeownership rates, accounting for 40 percent of the expected change.  "Most of this effect occurred during the downturn when economic conditions may have themselves been inhibiting marriages and family formation," the author stated.

Acknowledging the future of the trends is uncertain, Drew suggested if recent experience is any guide, they will continue to place downward pressure on young adult homeownership rates, at least in the near term.