House Arrest

American Demographics, May 1, 2004 by David G. Kennedy

Byline: DAVID G. KENNEDY

Housing continued its mighty boom through 2003, driving the U.S. economy forward as it has since 2001. Among younger buyers, however, momentum has hit a wall, as younger first-time purchasers increasingly encounter pricing levels that put them out of the running for ownership.

An all-time record 7 million homes were sold in 2003, besting 2002 record sales by 500,000, according to the National Association of Home Builders (NAHB). Increased demand, accordingly, has driven home prices steadily upward; the median existing home was worth $168,800 in January 2004, according to NAHB, a 14 percent jump over 2001 values.

Fueling this demand, the lowest interest rates seen in a generation have increased the availability of loans and the affordability of homeownership. Of the 7 million homebuyers in 2003, 40 percent were first-timers, according to the National Association of Realtors [superscript][R] (NAR); a record attributable to housing made affordable by low mortgage rates. The typical first-time buyer in 2003 was in her mid-30s, married and made $54,000. Her counterpart, the repeat buyer, was also married, though he was older, 46, and earned $74,600 last year.

But while U.S. Census Bureau numbers showed 68 percent of all Americans owned their homes in 2002 - another record the NAR expects 2003 to top - only 39 percent of 25- to 29-year-olds, 55 percent of 30- to 34-year-olds and 65 percent of 35- to 39-year-olds were owners. Meanwhile, nearly 72 percent of 40- to 44-year-olds and 75 percent of 45- to 49-year-olds owned homes in 2002 - proof that homeownership rates increase with age and income.

More telling, and possibly more troubling, is the relative decline of the 25-to-39 demographic as a percentage of all home-buyers each year. Although the largest percentage of homebuyers in 2003 were 25 to 34 and 35 to 44, representing 30 percent and 25 percent respectively, each age group recorded a total decline by 7 percent since 1995, according to the NAR, the only measured brackets in decline.

Economist Michael Carliner of the NAHB sees this trend continuing as Baby Boomers retire, and as minorities increase as a percentage of the younger population. Echoing more worried analysts, Carliner also suggests that while increasing home prices create wealth for homeowners, they present financial barriers for potential buyers, and they stretch incomes. "More and more people are relying on two incomes," says Collins, a potential danger if the economy falters because "people can't just add another income if times get tough," and an especially dangerous threat when compounded by the increased debt-burdens taken on in a generous environment.

NAHB president, Bobby Rayburn, and chief economist, David Seiders, among others, recently dismissed fears of a growing housing bubble in an economy poised for recovery, and discussed efforts to make "workforce" housing more affordable for lower- and moderate-income earners. Vital to local economies, these earners are often priced out of expensive urban housing markets, even with low mortgage rates.

SAGGING IN THE MIDDLE

Overall, homeownership in the past 20 years has gone up, but midlife age groups have seen a decline because of trends of postponing marriage, among other reasons.