Income Worries Fuel Young Adults’ Homeownership Slump

Chronic income worries and delayed marriage are leading young adult Americans, ages 25 to 44, to increasingly shy away from owning their homes, according to a new study.

The prime of a man’s life isn’t what it used to be. 

Chronic income worries and delayed marriage are leading young adult Americans, ages 25 to 44, to increasingly shy away from owning their homes, according to a study recently released by University of Iowa economist Martin Gervais, and Jonas D.M. Fisher of the Federal Reserve Bank of Chicago.

“If you have a lot of risk, you don’t want to lock yourself into an asset that is not liquid,” said Gervais, associate professor of economics at the Tippie College of Business, in the report, “Why Has Home Ownership Fallen Among the Young?” “Instead, they [young adults] wait until they have more wealth so they can better absorb wage shocks. Sometimes that means delaying a purchase until they’re significantly older, or maybe they just keep renting.”

Though people usually think of homeownership suffering since the real estate market collapsed in 2008, the truth is that homeownership among young American adults has been trending down since 1980. Only about 57 percent of adults in this group owned homes in 2007, below the 61 percent ownership rate in 1980. 

Today, the figure is even lower. 

Gervais said the drop came despite the fact that the rate of overall homeownership rate has increased significantly in America, especially in the last decade. Ownership among young adult Americans, 25-44, did increase somewhat, but not enough to shake the downward trend. 

Worse yet, the trend continues, despite numerous government incentives put in place to encourage homeownership among these same people. 

“Low interest rates, low down payments, and government programs to assist first-time homebuyers designed to increase first-time home ownership apparently had no effect in raising the ownership rate,” according to the study.

Gervais hypothesizes that the government’s incentives weren’t enough to offset two forces: general economic uncertainty among young adult Americans, and these Americans’ willingness to delay marriage or just not get married. 

The idea is that married Americans tend to have children and want to settle into their environment. For young adult Americans, marriage rates dropped 15 percent from 1980 to 2000. Along with that drop, homeownership also naturally dropped.

Yet homeownership also dropped among young adult Americans who were married, bringing to light a second factor: economic insecurity.

“Since the 1970s, wage shocks have become more frequent and more pronounced so households have more income uncertainty,” said Gervais.

While the economy has grown since 1980, recent studies have shown that for most Americans, wages and salaries—after being adjusted for inflation and buying power—have actually gone down. 

“Young people have memories of growing up during periods of stagflation, recession, and dot.com collapses. Employers lay off workers even during growth periods, so few workers can be assured of their long-term job prospects,” the release states.