We have been reading for several years now about two trends that appear troubling for the housing industry - a declining rate of homeownership and a stalled out rate of household formation.  The latter has recently begun to reverse itself as the huge millennial generation has reached maturity, found jobs, and moved out on their own, but homeownership rates continue to decline, reaching the lowest rate since tracking began.

The Mortgage Bankers Association (MBA) has just released a paper forecasting housing demand over the next ten years.  The paper, Demographics and the Numbers Behind the Coming Multi-Million increase in Households was written by Lynn M.  Fisher Vice President, Research & Economics and Jamie Woodwell Vice President of Commercial/Multifamily Research

Their study used data from 1975 to 2014 a period encompassing several market and housing cycles and the short version of its  conclusion was that "By 2024, demographic and economic changes will bring what could be one of the largest expansions in the history of the U S housing market - 15 9 million additional households."

Three generations of Americans will constitute the majority of adults over this ten year period, the Baby Boomers, their children, Generation X, and the Millennials.  The first and the third of these groups are huge.  By 2024 aging Baby Boomers will increase the numbers of households headed by those age 60 and older by 12.3 million while millennials will raise the ranks of households age 18 to 44 by 4.1 million.  The much smaller generation sandwiched in between will mean there will be 2.1 million fewer households in the 45 to 59 age group than there are today.

The authors looked at future demand for housing in three different ways:

  • how that demand will be effected by demographic changes that are already underway;
  • how household formation will change because of long-term societal trends and the hang-over from the Great Recession;
  • Potential changes in the distribution of homeowners and renters.

Even if household formation remains at 2014 low rates, demographic changes alone should account for 13.9 million new households by 2024.  Current household numbers are expected to expand by 5.5 million additional Hispanic households, 3.4 million non-Hispanic White households, 2.4 million Black households, 1.8 million Asian and 750,000 "other" households.  Growth in the older households will continue to be driven by non-Hispanic Whites as will the declines in the middle group.  Minorities will drive growth among Millennial households and will positively affect housing demand in every age group.



The authors say that if people of different ages, races, and ethnicity all acted in similar ways demographic changes would be less impactful but changes in age distribution translate directly into changes in housing demand with people becoming more likely to own a home as they age.  Persons of different races and ethnicities also interact with the housing market in different ways and there is a marked difference in both headship (the number of households per person) and homeownership rates across these groups. 

Putting these differences together creates some counterintuitive results.  For example the low homeownership rate among Hispanics might lead to the assumption that as that group grows its population share homeownership rates would drop further.  Yet two-thirds of population growth among Hispanics is in the over 40 age cohort where homeownership is above average.  "All else being equal," the authors say, "the result will be a natural demographics induced increase in the homeownership rate among Hispanics."

In addition to huge generational shifts, forecasters must confront the problems that societal changes as well as the Great Recession have changed the trajectory of many key life stages.  Compared to the early 1990s more young people are earning college and post-graduate degrees but the increases have been much greater among women.  People are marrying later and putting off childbearing as well but the birthrate among women over 30 has increased substantially.

If headship rates adjust and demographic changes continue thee will be 15.9 million additional households over the next decade, two million more than if headship rates remained at 2014 levels.  Household growth will be led by 5.7 million more Hispanic Households, 5.0 million more non-Hispanic White households, 2.4 million more Black households, 1.9 Asian households, and 890,000 more "other" households.



MBA looked at the two alternative scenarios (flat headship rates v increased rates) with respect to the path of homeownership rates, but regardless of the mix demand for all types of housing will be strong.  The authors say that one aspect that is often ignored is that homeownership rates will also likely be affected by shifts in demand between single family homeownership and single family renting.

There is little to suggest, the report says, that the recent declines in homeownership is permanent or to suggest that the recession induced rates of decline will carry forward.  Homeownership rates always follow the ups and downs of the economy, mortgage markets, and federal policies toward it.

In the first scenario, using current age and race specific homeownership rates, the U.S. will see 10.3 million additional owner households and 5.6 million new renter households over the next ten years with 9.9 million more owner households headed by a person over age 60 than today.  Generation X will account for 2.0 million fewer households with a head between 45 and 59 and Millennials will boost homeownership among 18 to 44 year olds by 2.4 million.

Under this scenario there will be 4.3 million new non-Hispanic White homeowners and 6 million more minority household owners; 3 million Hispanic, 1.3 million Black, 1.2 million Asian, and a half-million more "Other" households.

Demand for rentals will be affected in many of the same ways.  By 2024 there will be 5.6 million additional renter-occupied households with 3.0 million headed by someone over age 60.  Given the higher rentership rates among Millennials however rental households headed by someone 18 to 44 will increase by 2.7 million households while the middle age group of renters will decline by 100,000.

By racial breakdown Hispanics will account for 2.7 million new renter households, Blacks for 1.1 million, non-Hispanic Whites and Asians will each add 700,000 and Other households will increase rent rolls by 400,000.

Under the second scenario which accounts for demographic changes and changes in headship rates MBA projects 15.9 million addition households that will include 12.7 million owners compared to 10.3 million in Scenario 1 and 3.1 million renters compared to 5.6 million.  In this scenario Millennials play a much smaller role in renter demand as more are drawn into homeownership.

The number of new minority owner households will be more than one-third higher than the number of new non-Hispanic White Households.  Among renters the non-Hispanic White numbers will decline.

The authors conclude that the changes outlined above will flow through to changes in demand for single and multi-family housing.  The aging of the population, in particular Millennials, will generally boost demand for single-family housing and slow increases in demand for multi-family.  Changes in headship rates will boost demand for both types of housing but changes in age-specific homeownership rates will affect demand for multi-family housing very little and will instead mean shifts of some magnitude between single family ownership and single-family renting.