Income Worries Fuel Decades-Long GenX Homeownership Slump

Newswise — Chronic income worries and delayed marriage are behind a decades-long slump in home ownership among young people, according to a study by a University of Iowa economist.

Home ownership among Americans between the ages of 25 and 44 has been trending down since 1980, well before the housing collapse in 2006. Only about 57 percent of Americans in that age group owned their own homes in 2007, well below the 61 percent ownership rate in 1980, and that figure is even lower today, post-collapse.

Martin Gervais, associate professor of economics at the Tippie College of Business, said this drop came despite the fact that the overall home ownership rate increased significantly among Americans, especially during the housing run-up between 2001 and 2005. He said that while ownership among the young also increased during the last decade's run up, the rate didn't keep pace with overall growth.

This malaise in home ownership came despite numerous market forces and government incentives in place to encourage home ownership among young people. Low interest rates, low down payments and government programs to assist first-time home buyers designed to increase first-time home ownership apparently had no effect in raising the ownership rate.

Gervais said those incentives weren't enough to offset two powerful social and economic forces that kept many young people from buying homes: a general economic uncertainty that faced members of the so-called Generation X as they moved into the home-owning stage of their lives; and Generation X's willingness to delay marriage until later in their lives, or not get married at all.

Gervais and his co-author, Jonas D.M. Fisher of the Federal Reserve Bank of Chicago, studied home ownership rates of households where the head of the household was between the ages of 25 and 44. They looked at the period from 1980 to 2007.

Part of the reason for the drop is that home ownership is strongly tied to marriage, and Generation X is delaying marriage until they're older, or skipping it entirely. Marriage rates dropped 15 percent among young people between 1980 and 2000, so Gervais said it's no surprise that home ownership would also drop during that time.

But Gervais points out that homeownership dropped even among young married people, too, so delayed marriage can explain only part of the decline. The rest, he said, is likely due to economic insecurity, particularly when it comes to young peoples' salaries.

"Since the 1970s, wage shocks have become more frequent and more pronounced so households have more income uncertainty," said Gervais. While the economy in the aggregate has been growing since 1980, numerous recent studies have shown that for most Americans, real wages and salaries have actually gone down. Young people have memories of growing up during periods of stagflation, recession and dot.com collapses. Employers lay off workers even during growth periods, so few workers can be assured of their long-term job prospects.

Gervais said that wage instability is a powerful disincentive not to buy a house, and so fewer young Americans are willing to commit to such a large purchase.

"If you have a lot of risk, you don't want to lock yourself into an asset that is not liquid," he said. "Instead, they wait until they have more wealth so they can better absorb wage shocks. Sometimes that means delaying a purchase until they're significantly older, or maybe they just keep renting."

Gervais' and Fisher's study, "Why Has Home Ownership Fallen Among the Young?" was published in August in the International Economic Review. It can be found online at http://onlinelibrary.wiley.com/doi/10.1111/j.1468-2354.2011.00653.x/abstract.