Today, the sales of homes are rising, but homeownership is going down towards record lows which is a very dangerous trend. The homeownership rate stands at a mere 63.6% when seasonally adjusted for the first quarter of 2016. This is a mere 1/10th of 1% above the all-time recorded low of 63.2% which was recorded in the second quarter of 2015.
While it can be argued that the record high of 69.4% which was reached in 2004 was artificially produced thanks to generous loans, the ownership rate dipping to below 64% is very troubling for the real estate industry as a whole.
Fewer Young Homeowners
It may seem to be contradictory that the homeownership rate is declining when sales of homes are on the rise. However, the dip is coming from younger Americans who are not purchasing homes at the rate of their predecessors. The reasons why younger people are not purchasing homes at a rate comparable to twenty years ago involves different factors such as lower salaries, large student loan debt, tighter mortgage underwriting standards and higher home prices.
All of these factors are combining to create conditions that make it difficult for those 25 to 34 to purchase property. Today, the levels are nearly 10% lower than they were just 10 years ago. The first-time homebuyer represents only 30% of today’s buyers when traditionally they should be considerably higher. This shift in trend is causing worry in the real estate industry.
Higher Rental Rates
Another big issue that affects so many young people today is the higher rental rates that make it difficult to save up to purchase a home. For many of this age, they are waiting longer to get married and have children in part because of having to pay more while earning less. Over the past several years, wages for all Americans has dropped on average, but it has affected young people the most because they have astronomical amounts of debt and have yet to buy homes and raise children. For them, the higher rental rates are very difficult to overcome because it makes saving money to buy a home nearly impossible.
For millennials who represent a part of the population almost as big as the baby boomers, they have yet to fully get into the marketplace. However, older people are actually buying homes at a faster rate thanks in large part to selling their old homes and moving to places that offer better prices such as the Midwest. The migration of the baby boomers follows the tradition of older people moving into parts of the country that are less expensive and suitable for the fixed income of seniors.
For younger people, over 65% have formed households while still paying rent instead of buying a home. This will make their transition in later years more difficult as they will have no equity built up in the places where they live to sell and buy another home. This is particularly true in the western portions of the US where home prices have gone up considerably in the past several years.
Today, the homeownership rate for younger people does not look promising as they will face even more financial difficulties trying to save for a home while raising a family. This is one of the challenges that both the buyers and the lenders need to work together to help overcome to ensure a more secure future for families.