The housing boom of 2020 and 2021 was the exception, not the rule, according to First American Deputy Chief Economist Odeta Kushi.
“Record-low mortgage rates, the ability to work from home and a pandemic-driven desire for more space accelerated demand for homeownership in 2020,” she said in a release. “In 2021, homeownership demand fell compared with the previous year, but remained significantly higher compared with pre-pandemic levels in 2019. Yet, the underlying demographic and lifestyle choices that are important drivers for homeownership demand remained strong in 2021.”
Kushi analyzed First American’s Homeownership Progress Index (HPRI), which accounts for the influence of lifestyle, societal and economic trends on the likelihood of owning a home, providing a measure of potential homeownership demand.
Millennials are the largest generation in U.S. history, and the majority turned 31 in 2021. Historically, they have delayed the lifestyle choices often linked to buying a first home, including getting married and having children, to further their education.
“This is clear in cross-generational comparisons of homeownership rates, which show millennials lagging their generational predecessors. At age 30, 42 percent of millennials owned homes, compared with 48 percent of Gen Xers at the same age,” Kushi said. “Yet, millennials have significantly narrowed this gap as they move into a new phase of their lives. At the same age of 40, the millennial homeownership rate is 60.3 percent, while Gen X stood at 63.5 percent.”
In 2021, potential homeownership demand improved by 1.4 percentage points for millennials, the largest increase among their generational predecessors.
“While millennial homeownership has been delayed relative to their generational predecessors, millennials continue to have a strong influence on potential homeownership demand as they continue to age into their early-to-mid 30s and make the lifestyle decisions that are highly correlated with buying a home,” Kushi said.
While millennial homeownership demand grew last year, faster nominal house price appreciation alongside rapidly rising mortgage rates dampened affordability and made it difficult for first-time homebuyers to enter the market.
“Declining affordability may temper millennial homeownership demand in 2022. Nevertheless, the lifestyle choices that highly correlate with homeownership will persist,” Kushi said. “Buying a home is both a financial and lifestyle decision, and despite growing affordability headwinds, millennials continue to transition to their prime homebuying age and will remain the driving force in potential homeownership demand in the years ahead.”
According to the HPRI, the five states with the greatest year-over-year increase in potential homeownership demand in 2021 were Indiana (+1.7 percent), Virginia (+1 percent), Tennessee (+0.8 percent), North Carolina (+0.5 percent), and New York (+0.4 percent).
The five states with the greatest year-over-year decrease in potential homeownership demand were Alaska (-3.3 percent), Delaware (-3 percent), Nevada (-2.6 percent), Washington (-2.3 percent), and Nebraska (-1.9 percent).
The five markets with the greatest year-over-year increase in potential homeownership demand were Memphis, Tenn. (+3.9 percent), Indianapolis (+2.3 percent), Sacramento, Calif. (+1.7 percent), Virginia Beach, Va. (+1.5 percent), Philadelphia (+1.4 percent).
The markets with the greatest year-over-year decrease in potential homeownership demand were Orlando, Fla. (-3.6 percent), Birmingham, Ala. (-3.2 percent), Seattle (-2.7 percent), Las Vegas (-2.4 percent), and Columbus, Ohio (-2.1 percent).