More one-person households buying homes

Updated September 14, 2018. Originally posted January 2015.

Living alone

All by yourself? You’re in fine company. In fact, singles make up less than one-in-four households in California, up sharply from just a decade ago when singles consisted of one-in-five households.

49.6% of adults in California households include a married couple as of 2017. This percentage is down from 51% in 2000, but has increased slightly over the past couple of years. One-person households, having peaked in 2008, have continued a pattern of modest decline.

This decline in one-person households following the recession is partly due to young people who returned to the nest or took roommates because of the poor jobs market. They’ve since begun to bounce back and single households will likely remain stable as the jobs and housing recovery improves.

Single homeowners gain company

It’s easy to assume all of these one-person households are renters. However, increasingly more singles are striking out on their own to become homeowners.

Who are these single homebuyers? Most of them are women. In 2014, for instance, 16% of all homebuyers were of single women, as opposed to single men who made up just 8% of all homebuyers nationally, according to the National Association of Realtors.

Just over 45% of women over the age of 15 are married in California, according to 2014 Census estimates. However, a higher percentage of men over age 15 are married, at just over 48%. Most significantly, the marriage rate has declined swiftly for both genders, as 51% of women and 54% of men over the age of 15 were married in 2000.

Moreover, while the percentage of one-person households has remained mostly the same since 2009 (increasing throughout the early 2000s), the marriage rate has continued to drop each year. Thus, expect one-person households to resume their rise as we near a full housing recovery, aligned with the recovery of California’s economy and job market. That’s because individuals with incomes are more financially confident to live on their own, without the added security of a roommate, partner or familial aid to help with the bills.

Editor’s note — Jobs returned to their pre-recession number at the end of 2014. However, considering the intervening population gain of 1.2 million, the employment rate is expected to fully recover possibly as late as 2019.

Some will buy, more will rent

Homebuyers are looking a bit more mature lately. While some eager homebuyers choose to skip marriage and become homeowners, many will choose to remain renters in the interim.

After all, renting is often more affordable than buying in the city, where restrictive zoning cause prices to be out of reach for most young singles. Of course, these prices will fall into line with local incomes eventually, but in the meantime, it means a languishing homeownership rate, which stands at 53% statewide as of Q2 2016.

An older generation of homebuyers is not all bad news, though. Generation Y (Gen Y) is collectively coming of homebuying-age very soon. This demographic group is large, increasing 10% from 2008-2014. However, Gen Y had the great misfortune of entering the job market at the outset of the 2008 recession. The goods news is this: as California’s economy heats up in the coming years, rising numbers of (finally employed) Gen Y-ers are expected to add heat to the housing market.

They might be renting now, but those home purchases are coming — in earnest in the years following 2021.

Smaller homes, lower prices

This demographic shift carries a transformation for the housing market. Foremost is the need for less space. Single-person households don’t require the sprawling suburban homes made popular by the romanticized (and outdated) American Dream – which we no longer hear about.

Second, lower home prices are necessitated by the lower incomes of single households. The median income of California’s nonfamily households (consisting either of one-person households or individuals living with nonrelated individuals) is $44,100 according to 2016 Census estimates. In contrast, the median income of family households (consisting of two or more individuals related to each other by marriage, birth or adoption) is much higher at $77,400.

Of course, family households with children often dedicate much of these additional earnings to the costs of childcare, education and related expenses. However, this does not change the homebuyer’s 31% debt-to-income ratio limit to qualify for a mortgage. Thus, the maximum mortgage amount for which a one-person household can qualify is significantly less than a family household.

Home prices are first and foremost dictated by the incomes of homebuyers. A seller can set the price at whatever they want, but the home will only sell for the amount a buyer is willing and able to pay. Thus, with the rise in one-person households, home prices are destined to feel downward pressure, particularly mid-tier priced homes.

City living — not just a fad

Along with the pressure one-person households put on home prices, a transformation in the type of desirable home is expected.

Naturally, one-person households are unlikely to opt for large homes. (Remember those micro apartments that were snatched up in San Francisco in early 2014?) However, it’s not just about space—it’s about location. When small households don’t require the large space offered by suburbia, they are able to reside closer to the jobs and amenities an urban city offers.

California is the most urbanized state in the nation, with 95% of the population living in urbanized areas, as of the 2010 Census. Further, the top four most urbanized areas in the nation are located here in California (with the New York-New Jersey area coming in at number five). The U.S. Census Bureau classifies an urbanized area as a delineated Census area which encompasses at least 50,000 residents.

The most densely populated areas in California are:

• Los Angeles-Long Beach-Anaheim with 7,000 people per square mile;
• San Francisco-Oakland with 6,300 people per square mile;
• San Jose with 5,800 people per square mile; and
• Delano with 5,500 people per square mile.

Agents, consider a move of your own

You’ve heard us say it time and again — the future of residential real estate is found in urban centers.

It’s not just young singles interested in city living anymore, either. Baby Boomers are following their children’s lead and choosing to downsize and retire in the city.

If you found your fortune assisting clients in the suburbs during the 2000s, then look past the white picket fences and congested highways. The next Great Confluence of home buying will occur in urban areas. Don’t miss it.