Cohort insights into recovery of Millennial homeownership after the Great Recession

Abstract

Analysis tests the differences between age and cohort rates of homeownership, and evaluates lagged factors that have delayed Millennial home buying following the Great Recession. The first lag is structural: age group rates of homeownership are stock accumulations of home buying in prior years, slowly changing and heavily weighted by past achievement. In contrast, the inflow of homeowners is reflected in cohorts’ annual net increments of homeownership and provides a better measure of current demand. These cohort gains in homeownership rates turned sharply upward after 2012, four years earlier than age group rates finally stabilized. Increases in cohort rates of homeownership are shown to be much more predictive of aggregate home buying in a given period than the slowly-changing, age group (stock) rates.A second set of lags is behavioral and pertains to current inflows of homeowners that are linked to the lagged marital, income and market histories unique to each cohort, subject also to the current market forces impacting all cohorts. These effects are tested for a series of 2-year birth cohorts under age 40 observed from 2010 to 2016 in the 100 largest U.S. metros, using the large data samples from the American Community Survey. Findings are that homeownership gains are boosted by substantial lagged effects from marriage and income gains that occurred up to four years earlier, and also by incentives for home purchase from past price increases, offset by current affordability obstacles.Greater positive homeownership inflows by cohorts indicate stronger young-adult preferences for owner-occupancy than previously inferred from trends in the accumulated age group rates. Although Millennial homeownership rates remain lower than those of previous generations, gaps are closing, and lagged effects from delayed marriage and recent income growth lay a foundation for continued ownership gains to follow.