The U.S. homeownership rate increased from its lowest level since the third quarter of 1995, indicating that the housing market is starting to attract more buyers. This reading climbed from 65 percent in the second quarter of this year to 65.3 percent in the third quarter of this year. Homebuyers are still trying to get into the market before interest rates and prices jump any higher. The 30-year fixed rate was 4.27 percent during the last week of October.
One reason homeownership has remained so slow can be linked to the large percentage of young Americans still living at home with mom and dad or those who are renting and living with roommates. This group of young people has experienced some of the sharpest drops in homeownership since the financial crash in 2008. Jed Kolko of Trulia, an online real estate company commented, “The share of millennials living with their parents rose from 31.4 percent in 2012 Q3 to 31.6 percent in 2013 Q3, based on the raw Census data. During the recession, many people doubled up with roommates or lived with relatives, including young adults who stayed in their parents’ homes. Even now, years after the recession technically ended, young adults remain much more likely to live with their parents than before the recession.”
Unemployment for young adults is still very high, even though it fell to 74.6 percent in October according to the Bureau of Labor Statistics. The lack of employed young adults makes it very challenging for this group to obtain credit to purchase a home, thereby further damaging the homeownership rate. Kolko reported there is an estimated 2.4 “missing households” of people who should either be in rentals or be homeowners but are not. The prime age group for housing demand includes ages 25-34 year-olds. With employment rates for this group still below the levels seen before the recession, the housing market has reason to worry about its recovery.
The recent jobs report release Friday appeared to be positive but it did not take into account the 932,000 Americans that dropped out of the labor force in October. This takes the labor force participation rate of 62.8 percent to its lowest since 1978 (the third highest monthly rise in people dropping out of the labor force in U.S. history). As young adults continue to face challenges obtaining employment, homeownership will continue to struggle because they will opt to live at home until economic conditions improve.
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