High rents, home prices hurting younger Americans’ homeownership rates

Not surprisingly, it’s higher rents and home prices that are delaying homeownership among those under 35 years old.

Freddie Mac’s June Insight examined why there has been a decrease of 8 percent of homeownership rates among young adults under age 35 since 2004, when it peaked. Nearly 50 percent of young adults have not purchased due to high rents and home costs, they said. Getting married later, or not at all, and having children later, or not at all, was also a top reason and it impacted 22 percent.

“Historically low mortgage rates and increasingly favorable employment conditions should have generated a far greater number of home purchases by young adults, especially in the last five years,” said Sam Khater, Freddie Mac’s chief economist in a statement. “Unfortunately, home-price and rent growth above incomes – driven primarily by a severe shortage of housing supply – have been too high of a hurdle for many would-be buyers to clear. At a time when rising home values continue to build housing wealth for most homeowners, these weaker affordability conditions have led to a missed opportunity for the interested young buyers who are unfortunately priced out of the market.”

According to the report, the home price-to-income ratio has increased signifigantly in the last 18 years, which has hurt homeownership, especially in younger adults in metro areas.

By 2025, Freddie Mac predicts that homeownership among adults who are currently aged 25 to 34 will rise, but still be beneath the average for their age group.

“Demographics, housing preferences and economic conditions will all play a role in the direction of homeownership in coming years,” added Khater. “If economic conditions improve, and incomes and entry-level housing supply increase in a meaningful way, homeownership rates for today and tomorrow’s young adults could exceed our current projections.”