The homeownership rate is shrinking despite income increases and signs of a massive decline that spans education levels are becoming clearer, according to a recent report from Redfin.
Over the last 10 years, the national rate has fallen by 4 percent to 63 percent of Americans owning homes. One factor to this is home prices moving faster than incomes. It is Redfin’s belief that something big must shift for this pattern to change its course. In the most recent data, incomes increased the most they have in decades, but the homeownership rate still didn’t keep pace.
"The bad news is income has not been keeping up with home prices,” says Eric Scharnhorst, Redfin Livability Analyst. “But the good news is that between 2014-2015, middle class incomes jumped more than they ever have (5.2 percent). So there is that silver lining and we will see how that plays over the next ten years."
From 1995 and 2005, the gap in homeownership between households with a bachelor’s degree or higher and those that didn’t graduate high school widened nationwide from 14 percent to 21 percent. This was due to the college-educated group increasing their rate of homeownership while the group that didn’t graduate high school decreased their rate of homeownership.
Redfin’s data shows that overall, higher educated people are more likely to become homeowners with just one exception to that rule being high school grads versus households without a bachelor’s degree that took some college courses. Both of these subgroups have the same rate of homeownership nationwide even at the city level.
Redfin hypothesizes that one possible explanation could be student loans, which create an extra monthly payment that reduces leverage from a home loan application. Redfin notes that the average monthly payoff of $242 for student loans cuts $57,000 off of the top of a home loan, and this moves a whole sector of homes out of reach for these potential buyers.
The report does say that shared declines are only part of the picture. Looking further at the data provides insight that shows the most educated households are less vulnerable to foreclosures than the least educated. Redfin believes this is most likely because the most educated households tend to make more money, but this could mean the current sorting will remain the same until a future economic shock, such as another housing or job crisis, will further widen the gap.