This article examines the negative trend in real estate ownership among homeowners under 44 years old.

Between 1980 and 2000, national homeownership rose from 64% to nearly 70%. In spite of the housing market’s dramatic rise and fall in the 2000s, the number of homeowners nationwide remains higher now than it did in 2000: since 1980, the overall trend in the United States has been toward greater homeownership. Overall homeownership increases are attributable especially to the aging population. The rate of ownership among the age group over 65 jumped 7.5% between 1980 and 2000, thanks to several factors, including a corresponding increase in wealth.

In the meantime, the younger generation has followed a much different path to real estate ownership. Homeownership among the segment of the population aged 25-44 dropped dramatically between 1980 and 1990, and rose very little by 2007. In 1980, the population aged 25-29 had a 43% rate of homeownership. By 2000, that rate had dropped to 36%. Even within its own demographic, the percentage of homeowners aged 25-44 has fallen greatly over the past twenty five years, in spite of several factors designed to encourage ownership.

Why aren’t young people buying houses as frequently as they used to, when social changes and government innovation have worked so hard to increase ownership?

A recent report from the Chicago Federal Reserve, “Why Has Home Ownership Fallen Among the Young?”, examines this phenomenon. The Fed report suggests that increased ease of obtaining a home, brought about by increased female employment and eventually by lower lending restrictions, was simply balanced by other more significant factors.

First, most predictably, is a decrease in income stability. Studies show that the “earnings risk” (the risk of losing a job) increased in between 1966 and 1979, and remains elevated to this day. The instability of those lacking a 4-year college degree increased still more. People who lack confidence in their present income are more likely to put off the purchase of a home until they have accumulated enough to be certain of making payments, or until their own financial situation improves. The real estate bust of 2006 to 2010 will not help encourage homeownership, especially among the one million California households that will lose their homes in this Great Recession.

Meanwhile, those who might have wanted a home, the individuals who would have already been married if they lived in the 1970s, and thus are ready to “settle down,” now prefer to remain single and enjoy the continued mobility that comes with renting. Finally, the younger generation has demonstrated an increased tendency to delay marriage. Both women and men are now likely to wait until their thirties or later to get married, if they marry at all. Between 1980 and 2000, marriage rates for individuals 25-44 years old dropped 15%. The unmarried, more often than not, remain the renters.

The younger generation, it seems, is not falling for the “American dream” flag waving that seduced their parents. While aging baby boomers prefer homeownership to renting, this Great Recession will only make the next generation of potential homebuyers more wary of ownership. By the end of this Great Recession, 1,100,000 California families will have lost their homes to foreclosure (out of the approximately 8.5 million single family residences (SFRs) statewide) and it will take time for them to return to home ownership again, if they ever do. Meanwhile, renting an apartment conveys all the benefits of condo ownership, and is much cheaper. Expect the young among us to continue to express a healthy skepticism towards the presumed benefits of homeownership.

Declining homeownership among the young will remain an important factor in real estate. On the other hand, changes within any one age group are negligible in comparison with general demographic trends. The simple fact is that the aging population of baby boomers has always been, and continues to be, the largest force of homeowners on the market. They are now retiring, and will mostly want to sell their big, empty nests, head for wherever the grandkids live, and buy or rent a nice little condo.

Agents and brokers who choose to predict the direction of real estate can still count on a renewed rise in actual home sales when Generation Y  begins buying its first homes, a phenomenon that will peak in approximately 2017.  Until then, the purchasing power to control the market will remain with the older demographic, their parents. The lesson to learn from this article, however, is that the younger generation are not a carbon copy of their baby boomer parents, and the housing boom they bring will not be the boom of the mid 1980s. When that  2017 housing boom does occur, it may be weaker than some optimists expect—unless they account for the young population’s increased predisposition to rent by building the apartments they will desire. The future will reward those with an eye for management of high-end properties.

For the future of demographics and homeownership, see “First Time Homebuyers and New Housing.”