First American recently released its sixth annual Homeownership Progress Index (HPRI), which measures how lifestyle, societal and economic factors influence homeownership rates over time at national, state and market levels.
Several housing market records were broken during the pandemic, First American Deputy Chief Economist Odeta Kushi said, including the fastest house price appreciation since 2005, the fewest days on market in the history of record-keeping, the lowest mortgage rates ever, and the greatest cumulative number of purchase mortgage applications since 2008.
“But, while the pandemic accelerated the demand for homeownership, homeownership was on the upswing before the pandemic hit,” Kushi said in a release. “Fueled by a combination of demographic and economic factors, the homeownership rate has risen steadily since reaching a generational low of 63 percent in 2016, and 2020 was no different.”
From 2000 through 2009, the homeownership rate exceeded potential homeownership demand by an average of 1.7 percentage points, according to the HPRI.
“However, since 2010, potential homeownership demand, based on the lifestyle, societal and economic factors tracked in our HPRI model, has exceeded the actual homeownership rate,” Kushi said. “When the HPRI exceeds the actual homeownership rate, it indicates that homeownership may be restricted by market forces, like an historically low supply of homes for sale.”
“In 2020, rising house-buying power, driven primarily by low mortgage rates, was a primary driver of potential demand. Between 2011 and 2020, the annual average of the 30-year, fixed-rate mortgage has been near or below 4.5 percent, significantly below the pre-2011 average of 8.9 percent,” she continued. “In 2020, mortgage rates fell to their lowest annual level in history (3.1 percent), boosting house-buying power and further elevating potential homeownership demand, which exceeded the actual homeownership rate by 3.8 percentage points.”
The HPRI showed that in 2020, potential homeownership demand improved by 3.5 percentage points for millennials, the largest increase among the major generational groups. Generation Z followed with a 2.5 percentage point increase. Gen X increased by 2.1 percentage points and baby boomers by 1.3 percentage points.
“While millennial homeownership has been delayed relative to their generational predecessors, millennials now have the greatest influence on the housing market and remain poised to fuel a ‘roaring 20s’ of homeownership demand,” Kushi said.
The five states with the greatest year-over-year increase in potential homeownership demand in 2020, according to the HPRI, were: Alabama (+3.7 percentage points), Rhode Island (+3.3 percentage points), Idaho (+2.4 percentage points), Texas (+3.2 percentage points), and Connecticut (+3.1 percentage points). The only states with a year-over-year decrease in potential homeownership demand were South Carolina (-0.8 percentage points), Iowa (-0.4 percentage points), and Tennessee (-0.3 percentage points).