Although mortgage rates remain low, rising housing costs are resulting in fewer young adults buying homes, according to a report by Freddie Mac. Homeownership rates, therefore, will likely trail historical levels through 2025.
Why Aren’t Young People Buying Homes?
Freddie Mac’s new study looked at the economic and demographic trends that persisted from 2000 to 2016 and predicted trends through 2025. They found that fewer young adults are buying homes because of:
- Higher rents and home prices.
- Fewer people getting married and having children.
Freddie Mac found that, “higher rents and home prices are the primary reason for the decline in young homeowners (49 percent), followed by lower marriage and fertility rates (22 percent), and a likely combination of student debt, a preference towards renting, borrowing constraints and other factors (13 percent). The younger, more racially diverse population (12 percent), and increased migration to more densely-populated metro areas, which tend to be more expensive (11 percent), have also suppressed homeownership.”
The report shows that between 2000 and 2016, some 700,000 young adults weren’t buying homes because of rising prices, and that the number of young adults purchasing homes fell quite steeply after the financial crisis of 2008.
“Historically low mortgage rates and increasingly favorable employment conditions should have generated a far greater number of home purchases by young adults, especially in the last five years,” said Sam Khater, Freddie Mac’s chief economist. “Unfortunately, home-price and rent growth above incomes – driven primarily by a severe shortage of housing supply – have been too high of a hurdle for many would-be buyers to clear.”
Khater added, “At a time when rising home values continue to build housing wealth for most homeowners, these weaker affordability conditions have led to a missed opportunity for the interested young buyers who are unfortunately priced out of the market.”
Homebuyers Can Benefit from Low Interest Rates
For people who would like to buy a home, it’s a good time to make the purchase while mortgage rates remain low. However, as the economy continues to improve, rates are likely to rise in the future, as property values continue to increase.
For people wanting to delay the purchase of a home, such as young adults, Freddie Mac predicts they will be able to buy a home with a good interest rate over the next few years, but perhaps not at historically low rates. Khater suggests that demographics, housing preferences, and economic conditions will play a major role in the direction of future homeownership rates. “If economic conditions improve, and incomes and entry-level housing supply increase in a meaningful way, homeownership rates for today and tomorrow’s young adults could exceed our current projections,” he said.
In fact, by 2025 Freddie Mac projects:
- Baseline: The homeownership rate of young adults rises to 58.1 percent.
- Optimistic: The homeownership rate could rise as high as 60.0 percent – 1.9 percentage points more than the baseline.
- Pessimistic: The homeownership rate could only increase to 55.9 percent – 2.2 percentage points less than baseline.
For people who will be ages 25-34 in 2025, the homeownership rate is forecast to be 36.6 percent.
Mortgage rates remain at historically low levels, making it a great time to buy a home or refinance a mortgage.
You can learn how much you can afford to pay for a home, or how a mortgage refinance would affect your monthly payment, by contacting your lender to get pre-approved. Then, with this information, you can decide whether a home purchase or refinancing an existing mortgage makes sense for you.
Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.