Wednesday, October 31, 2012

Trends in First-Time Homebuying

During the past five years, the homeownership rate of 30-to-34-year-olds has fallen more steeply than the rate of any other age group. This is bad news for the housing market because, typically, the majority of Americans first become homeowners in their early thirties. Between the third quarter of 2007 and the third quarter of 2012, the homeownership rate of householders aged 30 to 34 fell from 55.3 to 46.9 percent. The rate fell because most 25-to-29-year-olds of 2007, who entered their early thirties during the next five years, were unable or unwilling to buy a home.

The homeownership rate of 25-to-29-year-olds was 40.5 percent in the third quarter of 2007. Five years later in the third quarter of 2012, the homeownership rate of the cohort, now aged 30 to 34, had grown to 46.9 percent. The cohort boosted its homeownership rate by 6.4 percentage points as it aged from its late twenties to its early thirties. Sounds good for the housing market, right?

Wrong. That 6.4 percentage point increase pales in comparison to past gains in homeownership as people aged from their late twenties to their early thirties. For example, in 2002 the homeownership rate of 25-to-29-year-olds was 39.6 percent. Five years later in 2007, the homeownership rate of the same cohort, aged 30 to 34, was 55.3 percent--a gain of 15.7 percentage points! If the homeownership rate of today's 30-to-34-year-olds had grown that much between 2007 and 2012, their current rate would be 56.2 percent--nearly 10 percentage points higher than it is today.

For the housing market to recover, it has to get those first-time homebuyers back.

Source: Census Bureau, Housing Vacancy Survey

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