This research was funded in part by a contract from the Realtor University Research Center. I also need to acknowledge the support of the Washington Real Estate Commission/Department of Licensing at the Washington Realtors in all the endeavor of the Washington Center for Real Estate Research, which through December 2011 was at Washington State University and which merged with the Runstad Center for Real Estate Studies at the University of Washington in January of this year.
Genesis of this project was repeated media focus on the decline of interest in homeownership in the aftermath of the bubble, contending the U.S. was entering a new age of renters. That story line continues to this day as evidenced by the Wall Street Journal article less than two weeks ago, even as the home sales market is showing real signs of life, and some communities and neighborhoods have become seller’s markets. The question becomes are we drawing conclusions based on faulty or incomplete understanding of generational cohorts?
We need to begin with definitions. In general, a generation is roughly a span of 20 years. About the only generation for which there is complete agreement regarding dating is the 1946-64 period known as the Baby Boom. The names by which we refer to generations vary, and scholars do not agree. For the cohorts through the Baby Boom, I have used the names proposed by Strauss and Howe in their 1991 book Generations. For the later group I have chosen the dates and names which are most prevalent in the literature. Much of this presentation will focus on comparisons between the Baby Boom Generation which has driven consumer and housing markets since the 1970s and the Millennial Generation, which is even larger than the Baby Boom cohort.
By and large, the members of the largest cohort, the Millennials are the offspring of Boomers, augmented by youthful immigrants.
This graph illustrates the importance of each demographic cohort in the housing market. Baby Boom, Baby Bust and Millennials are currently of almost even importance in the rental market, but Boomers are critical as homeowners, and as Selma will discuss shortly, their homeownership decisions regarding the sales of the homes they own will be very important. I will focus, however, on the new generation of owners, the Millennials. Looking at this graph you may ask, “Why is Gen Y so small?” Remember that half are still teenagers and certainly not independent households. Many older Millennials also moved home to Mom and Dad after they graduated college, even before the recession
Same data as previous slide, now converted to percentages. The oldest among us have begin adjusting their living conditions back to rental as they find upkeep of owned homes beyond their physical and financial capacity. The Silent Generation are still in their homes with roughly an 80% homeownership rate, with the Baby Boom generation not far behind. Value losses and the unwillingness to recognize what was expected to fund their retirements will keep baby boomers in their owned homes longer than they (we) may have planned, and will keep some from buying in a retirement destination. Gen X currently has a 56.3% ownership rate, a bit higher than the 55.9% rate which prevailed for Baby Boomers 20 years earlier. This is hardly evidence that Gen X will be a generation of renters!This is national data. Because of the move I was not able to compute Washington specific data.
While the rate of household formation is declining, it does not mean the number of households is declining. In fact, the number of households has grown in each year covered by this 31-year graph.
This data uses Vacancy and Homeownership data of the Census Bureau. Notice than in 2011 the ownership rate for householders over 65 exceeds that of pre-retirees for the first time. Furthermore, that is the only group for which the ownership rate in 2011 was above 2002. In part, this may be due to declining values which older homeowners were unwilling to recognize.
In one of the most public failures of academic economics, M&W treated the Baby Boom Generation as one amorphous whole, rather than recognizing that economics and social mores were evolving, and this generation was very different than those that went before. Marriage, children and home purchases were all delayed relative to previous cohorts. Two-income families changed the economics of housing demand, and baby boom households were more mobile, and willing to trade up that their elders, and continued purchasing homes even as we approach retirement. Lessons of M&W must color our investigations of homeownership by the Millennial Generation.
Much has been made of the decline in the homeownership rate since its peak at 69% in 2004, with the last observation of 66.1% for 2011. It must be noted, however that between 1982 and 1997 the ownership rate was BELOW 66%. More concerning is the sharper decline for householders under age 35 the ownership rate peaked in 2004 at 43.1 percent and has dropped back to 37.7% in 2011. Only 3 years since 1982 have seen lower ownership rates for these younger householders—1992-94. However, we run the risk of making generalizations like those of Mankiw and Weill…
Each generational cohort is color coded. Because of their importance to demographic analysis, I will focus on the baby boom and the Millennials. The number of Millennial home owners was 58.6 % GREATER than the number of baby boomers when they were the same age 40 years earlier, comparing the single green shaded box to the top blue box under the <25 age group. Will they continue to achieve ownership at the same rate as my generation? That remains to be seen, but early indications as the housing recovery begins in 2012 is encouraging.
This is the companion to the previous table. Again it shows the higher level of ownership by the Millennials than the Boomers at the same age. Remember, this is 2010 data after the boom and the first half of the bust.
While headlines have shouted the decline in homeownership rates, when we compare the birth cohorts, they only group which has a lower ownership rate in 2011 than they did in 2007 is actually the first part of the baby boom, where the rate is lower by a scant 0.1 percent! It is worth noting, however, that the ownership rate of Millennials who were between the ages of 29 and 33 in 2011 is LOWER than the ownership rate for Boomers who were between the ages of 30 and 34 in 1982 by a relatively significant 7.3 percent. This may be the most significant evidence that a generational shift may be underway!
Survey data is easy to say I will buy…but revealed preferences for actual purchases may be different than plans. College educated are more likely to be homeowners than those with less education, but this survey indicates that 96 percent of the students who studied real estate at WSU last year intend to purchase a home at some point in their lives. Survey was conducted at the end of the class. Because the students were in a real estate class it is highly likely they were biased toward homeownership…
During the class we often discussed the impact of the bubble on households, the increases in foreclosures, the loss of equity, etc. The popular press contends this is leading to a generation of renters afraid to enter the home ownership market…it’s too risky. Instead, this group of student contend the resulting increases in affordability make it increasingly likely they will purchase a home after graduation, sometime.
This quote, referenced in the literature review portion of my paper for RU, I think sums up succinctly how generational trends will impact the homeownership market in the coming decade. While the ownership rate in an aggregate sense may decline a bit further, the notion of homeownership as a component of the Amreican Dream is built into our collective psyche, and will not easily be dislodged. Certainly issues of employment security (or lack thereof, and the illiquidity of housing as a financial good, coupled with short-term memory of the pain of the Great Recession will color the market, we must also remember that ownership rates declined for awhile after the Great Depression, but it certainly did not stop those who experienced the depression from eventually returning to homeownership. I was asked by a Washington legislator in 2005 what it would take to achieve a 75% homeownership rate. He didn’t like my response at the time that not only could we not achieve it, but that the then current homeownership rate was not sustainable. Settling into a long-term rate of about 64 is consistent with a sustainable housing market. We may dip below that for awhile, but the sheer size of the Millennial Generation coupled with the non-financial, psychological preference for owning should prevail.
Generational Trends in Home Ownership: An Era of Renters?
Generational Trends in Home Ownership: An Era of Renters? Glenn E. CrellinRunstad Center for Real Estate Studies University of Washington Realtor® University Forum May 18, 2012
Acknowledgments Principal Sponsor of this project Realtor® University Research Center General Sponsors of WCRER/Runstad Center Research Washington Real Estate Commission Washington Realtors®
Recent Headlines Homeownership May Be for the Few, not the Many USA Today, March 2011 American Dream, Downsized: Homeownership Not a Given McClatchey, September 2011 Renting Prosperity Wall Street Journal, May 5-6, 2012
Identifying Generations G.I. Generation Born 1900-1924: Age 87+ Silent Generation Born 1925-1945: Age 66-86 Baby Boom Born 1946-1964: Age 47-65 Generation X/Baby Bust Born 1965-1979: Age 32-46 Generation Y/Millennials/Echo Boom Born 1980-2000: Age 11-31 Generation Z/Internet Generation Born 2001-present
Age Distribution of Population 2% 11% 13% Z/Internet Y/Millennial X/Bust 26% 28% Boom Silent G.I. 20%
Tenure by Age GroupY/Millennial X/Bust Boom Silent G.I. 0 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 Own Rent
Tenure by Age GroupY/Millennial X/Bust Boom Silent G.I. 0% 20% 40% 60% 80% 100% Own Rent
Homeownership Rate by Age of Householder 90 80 70 60 <35 50 35-44% 40 45-54 30 55-64 20 65+ 10 0 1982 1992 2002 2011
Historical Context Mankiw and Weil, Regional Science and Urban Economics, 1989 “The entry of the Baby Boom generation into its house-buying years is found to be the major cause of the increase in real housing prices in the 1970s. Since the Baby Bust generation is now entering its house-buying years, housing demand will grow more slowly in the 1990s than in any time in the past 40 years. If the historical relation between housing demand and housing prices continues into the future, real housing prices will fall substantially over the next two decades.”
WSU Student Survey: When Plan to Purchase Home 4% 10% 7% 7% 1-2 yrs 3-5 yes 6-10 yrs 11-15 yrs 24% >15 yrs 48% Never
WSU Survey: Impact of Bubble/Collapse %Much more likely to purchase 6.9More likely to purchase 34.5No change in likelihood of purchase 13.8Less likely to purchase 13.8Much less likely to purchase 3.4
Conclusion “Gen Y will absorb an even greater number of owner- occupied and detached housing units. Indeed, if they attain 2020 ownership rates similar to households of the same ages in 2010 (which are much lower than those in 2000), they will absorb nearly 13 million owner-occupied units during the decade, or 2.5 million more than were absorbed by households of the same ages during the 2000s.” Bitter and Krause, 2012