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articles about “Homeownership

More Millennials Leave Parental Nest, Without Lifting Housing Market

Although slightly fewer young adults are living in their parents’ homes, don’t get too excited. Fewer are heading their own households, and the true young adult homeownership rate slipped in 2014.

Jed Kolko, Chief Economist
September 16, 2014

This morning, the Census Bureau released 2014 data that show whether Americans own, rent, or live under someone else’s roof. (See note.) As we’ve pointed out before, the published homeownership rate is often a misleading guide to what’s really happening in the housing market. For instance, suppose young people move out of their parents’ homes into rental apartments. That would lower the published homeownership rate because the number of renters has increased – even though the number of young homeowners is unchanged.

Using these fresh 2014 data, we update several key measures of housing and living arrangements, including:

  1. the percentage of young people living with their parents;
  2. the headship rate, which is the percentage of adults who head a household, either as an owner or a renter;
  3. our “true” homeownership rate, which equals the percentage of adults who are homeowners.

These three measures are closely related. If young people move out of their parents’ homes and become either renters or homeowners, the share of young adults living with parents goes down, while the headship rate for young adults goes up. Furthermore, the true homeownership rate equals the published homeownership rate times the headship rate – and therefore takes into account whether people are dropping out of or entering the housing market. Thus, it gives a clearer picture of whether the housing market is recovering. With that overview, here’s what the new 2014 data show.

True Young-Adult Homeownership Rate Falls in 2014, Reversing 2013 Increase
Let’s start with those millennials in the basement. They’re still there, but, ever so slowly, more are moving out. In 2014, 31.1% of 18-34 year-olds lived with their parents, down slightly from 31.2% in 2013 and from the peak of 31.6% in 2012.

1834LivingWithParents … continue reading

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Homeowners and Renters … Together?

Homeowners and renters are much more likely to be neighbors in Florida than in the New York City area. The housing bust brought owners and renters closer together in most markets as many single‐family homes became rentals.

Jed Kolko, Chief Economist
August 27, 2014

Most neighborhoods have both renters and homeowners, and that mix depends on the housing stock. Most single‐family homes are owner‐occupied and most multi‐unit buildings are rentals. But there are plenty of exceptions. High‐rise neighborhoods often have both condo owners and apartment renters. And suburban areas with mostly owner‐occupied single‐family homes often have at least a few renters sprinkled in.

Whether renters and owners live together or apart matters for two reasons. First, when every neighborhood has both renters and owners, the choice of which neighborhood to live in isn’t limited by whether you rent or buy. But in a city where neighborhoods tend to be renter‐only or owner‐only, your choices are limited. In particular, people who can’t afford to buy a home have fewer neighborhoods to choose from when looking for a rental. Second, people care who their neighbors are. That’s especially true for homeowners. When they’re asked what’s important to them about their neighbors, they say they care most about whether the people who live near them are also homeowners, according to a September 2013 Trulia survey.

Renters and homeowners are more integrated—which is to say less segregated—in some metros than in others. But overall segregation dropped between 2000 and 2010, mostly because the housing bust turned some single‐family homes in predominately owner‐occupied neighborhoods into rentals.

Where Renters and Owners Mix – And Where They Don’t
To analyze how integrated or segregated renters and owners are in different metros, we used what’s called a dissimilarity index, which is a measure of how evenly two distinct groups are distributed across a geographic area. For each metro area, this index ranges from 0 to 1:

  • 0 indicates a completely integrated metro that has the same mix of renters and owners in every neighborhood.
  • 1 indicates a completely segregated metro where every neighborhood is either all owners or all renters.

The index equals the percentage of owners or renters in a metro that would have to move to a different neighborhood for all neighborhoods to have the same mix of owners and renters. (Throughout this post, “neighborhood” means Census tract. See note below.)

Among the 100 largest U.S. metros, the top four where renters and owners are most integrated are in

Florida. In the top three—Lakeland‐Winter Haven; North Port‐Bradenton‐Sarasota; and Palm Bay-Melbourne‐Titusville—fewer than 30% of households would have to move to equalize the mix of owners and renters across all neighborhoods. Overall, the 10 metros where renters and owners are most integrated tend to be in the Sunbelt.

Top 10 Metros Where Owners and Renters are Most Integrated
# U.S. Metro Dissimilarity index of owners vs. renters
1 LakelandWinter Haven, FL 0.28
2 North PortBradentonSarasota, FL 0.29
3 Palm BayMelbourneTitusville, FL 0.29
4 Cape CoralFort Myers, FL 0.31
5 Bakersfield, CA 0.32
6 Dayton, OH 0.32
7 Jacksonville, FL 0.32
8 Little Rock, AR 0.32
9 Charleston, SC 0.33
10 Greenville, SC 0.33
Note: among 100 largest metros. The dissimilarity index ranges from 0 to 1. A lower dissimilarity index means owners and renters are more integrated (i.e. less segregated). 

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Cutting Housing Costs When Financial Hardship Strikes

If forced to spend less on housing, people would rather change where they live than whom they live with. Downsizing is the #1 way people would reduce their housing costs. Furthermore, renters are significantly more willing to move or get a roommate than homeowners are.

In good economic times as well as in bad, financial hardship can always strike. And when it does, people might have to cut back on housing, which is typically the largest household expense. However, cutting housing costs involves hard tradeoffs: moving can be expensive and a hassle, and living with family, friends, or strangers can be a challenge. To understand how people might make these tradeoffs, we asked 2,048 Americans in late March and early April 2014 the following question:

“If you experienced a major financial hardship (e.g., lost your job, unexpected medical bills), and you needed to cut back significantly on your housing costs, which of the following would you most likely do? Please select all that apply.”

Here’s what they told us.

Everyone’s Top Cost-Cutting Strategy: Downsizing
Facing financial hardship that required cutting back on housing, nearly 2 in 5 people (38%) would move to a smaller home — more than any other option by a wide margin. In fact, twice as many people would prefer downsizing than the next most popular actions of (1) renting out part of their home to a roommate or housemate or (2) moving to a more affordable neighborhood. Far fewer people would take the more radical actions of living in their car or not paying the rent or mortgage.

How Would You Cut Your Housing Costs If Hit With A Major Financial Hardship? Share
Move to a smaller home/apartment 38%
Rent out part of my home to a roommate/housemate 19%
Move to a more affordable neighborhood in the same city, metro area, or region 19%
Move to a more affordable city, metro area, or region 16%
Move into my parents’ home 14%
Move into my children’s (or other relative’s) home 8%
Rent out part of my home to vacationers/visitors 6%
Live in my car, office, or another place that’s not intended as housing 5%
Move into a non-relative’s home 4%
I would stay in my current home but stop paying the rent or mortgage 4%

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The Recession’s Lost Generation of Homeowners Isn’t Millennials – It’s the Middle-Aged

Though the published homeownership rate for young adults is still falling, true homeownership among young adults started rising in 2013. Adjusted for longer-term demographic shifts, young-adult homeownership is now at pre-bubble levels, but middle-aged homeownership is lagging.

The latest Census data shows homeownership is still falling for young adults, and the National Association of Realtors (NAR) reports that the share of first-time home-buyers is slipping. While the housing market is clearly improving, with four of the five key indicators of the housing recovery from our Housing Barometer at least halfway back to normal, it looks like the recovery is happening even without much improvement in first-time homeownership. Does that mean the housing recovery isn’t for real?

Not so fast. The official homeownership rate published by the Census gives a misleading picture of homeownership trends. In fact, homeownership among young adults is both on the rise and not too far off from where demographics say it should be. To see this, we did two things in this analysis: (1) account for changes in household formation to get a true measure of homeownership, and (2) adjust for longer-term demographic shifts to compare homeownership levels today with pre-bubble levels.

The answer: our “true” homeownership rate disagrees with the published homeownership rate, and shows that homeownership among young adults increased between 2012 and 2013 after hitting bottom in 2012. However, once we adjust for the huge demographic shifts among young adults – far fewer young adults are married or have kids than two or three decades ago – homeownership in 2013 was roughly at late-1990s levels. That means that the demographic shifts among young adults account for the entire decline in homeownership for 18-34 year-olds over the last twenty years. In other words, if the pre-bubble years of the late 1990s can be considered relatively normal, than today’s lower homeownership rate for young adults might be the new normal, thanks to demographic changes.

But that doesn’t mean all’s well. There may be longer-term damage to homeownership from the recession – but to the middle-aged, not millennials. Homeownership among 35-54 year-olds is lower today than before the housing bubble, even after accounting for demographic shifts. Here’s why.

Young Adult Homeownership Actually On the Rise
The published homeownership rate equals the share of households that own their home instead of rent. It does not, however, capture changes in whether people are dropping out of the housing market to live under someone else’s roof, like those millennials in their parents’ basement, who – in case you missed it – are for real. But if, say, people move out of their parents’ homes and into their own rental apartments, the published homeownership rate would still be falling even if the share of young adults who own remains the same.

Instead, we looked at the true homeownership rate, which equals the number of owner-occupied households divided by the number of all adults; in contrast, the published homeownership rate equals the number of owner-occupied households divided by the number of all households. Of course, the true homeownership rate is always going to be much lower – by half or more – than the published homeownership rate because there are roughly twice as many adults as there are households. The key point, though, is that the published and true homeownership rates can move in different directions if the number of adults per household is changing. That is, in fact, what happened during the recession and recovery (see note #1).

During the recession, as more young people moved in with their parents and fewer headed their own households, published homeownership rate fell from 44.1% in 2005 to 36.8% in 2012 – the 7-point decline was a 17% drop in homeownership. (What we’re calling “published” numbers actually differ slightly from the quarterly and annual homeownership estimates by age group published by the Census – see note #2.) However, the published rate understated the decline: the true homeownership rate for young adults fell from 17.2% in 2005 to 13.5% in 2012 – a drop of 22%.

Then, during the recovery, more young people started to form their own households, primarily as renters. The additional renters pushed the published homeownership rate for 18-34 year-olds down further in 2013 to its lowest level since our analysis begins in 1983:

PublishedHomeownership1834

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Basement-Dwelling Millennials Are For Real

Although a key Census survey counts students in dorms as living with parents, increased college enrollment and dormitory living do not account for the increase in millennials living under their parents’ roofs. Alternative analyses confirm that in the recession millennials have been much more likely to live with their parents than in the past.

The share of millennials – that is, 18-34 year-olds – living with their parents reached a many-decade high during the recession. Last week, an article suggested that these statistics are “criminally misleading” in overstating the increase in millennials actually living with parents because (1) they count dorm-dwelling college students as living with their parents and (2) college enrollment among young people has risen significantly.

Both these points are true: the Current Population Survey’s (CPS) Annual Social and Economic Supplement (ASEC) counts college students who are living in dorms as living with their parents, and college enrollment has indeed gone up. But it does not follow that basement-dwelling millennials are a myth. The ASEC and other Census data show that after adjusting for college enrollment and for dormitory living, millennials were more likely to live with parents in 2012 and 2013 than at any other time for which a consistent data series is available (1986 or 1990, depending on the data source).

Revisiting the ASEC Data
The ASEC counts college students who are living in dorms as living with their parents, so it’s impossible to separate out the dorm-dwellers who were reported as living with parents from college students actually living with their parents full-time. But the survey also reports whether 18-24 year-olds are enrolled in college (in survey years 1986 onward). As a first step, we can exclude all full-time college students from the analysis to make sure we’re not including any dorm-dwellers. Excluding full-time college students, the share of millennials living with parents is still far higher during the recession than at any other time since 1986.

Shareof1824LivingWithParents

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