What’s the main reason your first-time homebuyers choose to buy?

  • Pride of ownership. (43%, 20 Votes)
  • Investment purposes. (34%, 16 Votes)
  • To save money. (15%, 7 Votes)
  • Other. (9%, 4 Votes)

Total Voters: 47

If you knew your home’s foundation was slowly but surely collapsing beneath you, you would likely take steps to fix the issue, or you might even move.

Well, homeownership is the bedrock of the housing market, and it is gradually but assuredly crumbling.

While the number of homeowners continues to grow, the share of homeowners among the total population is falling on a generational level. In other words, compared to their parents and grandparents, today’s would-be homebuyers are less likely to become homeowners. Of those who will own homes in the coming years, an increasing share will be in the post-retirement age group, which will cause a cascading effect on homeownership in the coming decades.

The Urban Institute forecasts by the year 2040:

  • 34% of households will consist of a 65+ year-old head(s) of household;
  • Millennials (who will be around 45-54 years old at that time) will have a homeownership rate 8 percentage points lower than the same age group during the Boomer generation; and
  • 25-to-44-year-olds will see their homeownership rate decline 6.5-to-9 percentage points compared to the Boomers.

From a demographic perspective, the Urban Institute sees the homeownership rate declining by:

  • 0.2% for Latinx homeowners;
  • 3.5% for White homeowners;
  • 4.1% for Asian homeowners; and
  • 12.4% for Black homeowners.

The good news: the Urban Institute believes this negative future may be shifted by implementing targeted homebuying programs to encourage homeownership for creditworthy individuals.

California’s low homeownership rate

Real estate professionals in California know the situation is actually much worse.

California consistently has the second-to-last homeownership rate in the nation, only behind New York. Both states are dominated by expensive, low-inventory housing markets. This is true on both the rental and homebuying side.

Multiple listing service (MLS) inventory is at its lowest in recent memory, averaging 16% below a year earlier at the end of 2020 across California’s largest metros. With low inventory comes high homebuyer competition, which pushes home prices higher, faster.

Our state’s stunted inventory is the direct result of inadequate construction levels. Residential construction has lagged below demand for the past decade. In 2021 alone, multi-family construction declined 28% from the prior year and SFR starts decreased 16%.

Local governments can induce and encourage more building by loosening overly strict zoning restrictions, which result in:

  • less construction;
  • failure to meet high demand for housing;
  • inflated prices for both new and resale homes;
  • an unstable housing market as home prices rise faster than incomes can keep up; and
  • stunted homeownership and home sales volume.

Until construction rises to the level of demand, inventory will continue to struggle and remain out of reach for many would-be homebuyers, leaving homeownership to linger near last place. For real estate professionals, this translates to fewer home sales and a less stable flow of fees.