Richer couples! Cheaper mortgages! Millions of unwanted houses! Despite all this, young home owners declined for 30 years, even before the Great Recession. Here's how the American Dream shrank.
[Update: Read our round-up of your amazing comments here: "We Wish Like Hell We Had Never Bought"]
When older generations wonder what's the matter with Millennials, they often judge their younger cohorts against such financial and social benchmarks as finding a job, getting married, and buying a home. These observations often come wrapped in weak science -- "blame Facebook for their indolence" -- or dripping with judgment -- "blame their parents for making them weak." The science is weak, but the observations are true. Fewer young people are finding jobs. Fewer young people are getting married. Fewer young people are buying homes.
Between 1980 and 2000, the share of late-twenty-somethings owning homes had declined from 43% to 38%. The share of early-thirty-something home owners slipped from 61% to 55% in that time. After the boom and bust were over, both rates kept falling. The rate of young people getting their first mortgage between 2009 and 2011 was chopped in half from just 10 years ago, according to a recent study from the Federal Reserve.
One headwind is student debt. "Close to $1 trillion, America's mounting
pile of outstanding student debt is a growing drag on the housing
recovery, keeping first-time home buyers on the sidelines and limiting
the effectiveness of record-low interest rates," Bob Willis reported in Bloomberg Businessweek.
This is good news and bad. Rising student debt is a sign of more students. We should want (and expect) more people to go to school in a recession. But the trepidation of first-time home buyers hurts housing sales, feeding a pernicious cycle. Bad housing numbers circulate back through the economy in the form of low residential investment, scant construction, and fewer housing services.
The decline in young home owners is a puzzling trend. Interest rates have steadily declined over the last 30 years. Mortgage lending has loosened. Women have ascended in the workplace and supplemented their spouse's earnings. How in the face of all of these positive developments did home ownership among the young keep falling?
ALL THE SINGLE RENTERS
To understand why young people are buying fewer homes, begin by asking yourself: What do you need to buy a home? We'll start with three basics. You need a mortgage. You need income for the downpayment. And you probably need a spouse. Controlling for income, gender, and education, a married person is 23% more likely to own compared to someone who is not
married, and many more couples buy a home as they are preparing to wed.
"The 1980-2000 decline in young home ownership occurred as improvements
in mortgage opportunities made it easier to purchase a home," Martin Gervais and Jonas D.M. Fisher write in their seminal paper Why Has Home Ownership Fallen Among the Young? So we can't begin by blaming too few available mortgages. Government interventions and mortgage innovations (remember subprime lending?) should have meant more young couples buying houses. With the rising employment and earnings of women, households should have gotten richer. That, too, should have increased homeownership. It didn't.
Instead, we can begin by blaming a shortage of couples. The decline of marriage and the increase in "household earnings risk" account for practically all of the decline in young home ownership, Gervais and Fisher conclude. So, to understand the decline of young home ownership, we have to understand the decline of marriage.
Unfortunately, the decline of marriage isn't an easier trend to unpack. I offered some thoughts here, which I'll try to sum up in a sentence: Higher college-graduation rates have delayed marriage for many, and as women moved toward financial equality with men (and as technology made it easier to be alone) financially motivated marriages went down, and contently single ladies went up. "A decline in the incidence of marriage mechanically lowers home ownership," Gervais and Fisher write.
But that's not all.
It's not just the marriages. It's also the money.