There’s reason to be optimistic about millennial homeownership.
Many headlines lament the fact that millennial homeownership is at a record low, pointing out that the age range of 25-34 is usually when people buy their first homes. But these popular perceptions are often fueled by comparisons of millennials with people in the same age group but at a different point in time.
This so-called “age-group” approach may be a mistake, according to new research from the University of Southern California and Fannie Mae.
“By focusing on cumulative homeownership attainment as of a given age, the traditional age-group approach confuses recent home purchasing behavior with housing tenure choices made many years ago,” according to the report.
The authors suggest a cohort-based approach, which increments in the homeownership rate for a group of young people as they grow up.
This measure reflects the underlying economic conditions and “the legacy of its past pace of advance under sometimes very different economic circumstances.”
In fact, no age group has experienced a statistically significant boost in the homeownership rate — even between 2014 and 2016, when job gains and income were healthy in the U.S., according to the report.
Particularly for millennials in their 30s, the low homeownership rate reflects recent home purchases in a healthy economy as well as earlier decisions during one of the worst recessions in history.
A new approach
Why does the cohort approach make more sense? It contextualizes home-buying in the current economic environment.
“Homeownership rate increments for different cohorts passing through the same age range, but during different historical periods, can be compared,” according to the report.
This helps economists better determine if home-buying has improved along with the economy.
It turns out that the pace of young-adult home purchases accelerated between 2012 and 2014, during the economic recovery. It further quickened through 2016.
“Millennial homeownership attainment in very recent years has upshifted substantially in response to improvements in the economy,” according to the report. This signals that young adults maintain very positive perceptions of homeownership.
The report addresses the roadblocks that remain for homebuyers, particularly a severe shortage in supply and a surge in prices. Home prices across 20 US cities rose at the fastest annual rate since 2014.
There’s an oft-repeated myth that homeownership has lost its luster among millennials who remain renters by choice. But with a cohort perspective, it turns out that their behavior isn’t drastically different after all. And the demand for homes is very much there.
Melody Hahm is a senior writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.