First American Homeownership Progress Index

Homeownership Progress Index Declines 1.8 Percent Year-Over-Year

"Education is, as never before, a key to accessing the dream of eventually owning a home," says Chief Economist Mark Fleming.

The 2015 First American Homeownership Progress Index (HPRI), which measures the level of homeownership and the underlying demographic and economic factors that influence the probability of homeownership over time and geography based on IPUMS Census Data, declined 1.8 percent year-over-year, and is down 7.6 percent from the peak in 2005. The Homeownership Progress Index is currently just 0.4 percent above the 25-year low point that was set in 1995.

Homeownership Varies at State and Market Levels

While the HPRI declined nationally, the state of homeownership can vary dramatically by state and by market.

In 2015, New Hampshire and Vermont claimed the highest overall rates of homeownership among all states, followed by Hawaii, Washington and Delaware. These five states are the only states with homeownership rates that exceed their homeownership rates from the year 2000. All other states are worse off from a homeownership perspective than in 2000. In fact, Nevada fares the worst at 18 percent below its 2000 level of homeownership. The collapse of the American Dream continues to linger in this particularly hard hit market.

At the market level, Austin and Houston stand out for their increases in homeownership, possibly helped by the fact that neither market experienced a significant downturn in their housing markets during the crisis, and are now benefiting from positive demographic and economic conditions. Houston's positive trend may change in 2016 as it weathers the energy sector downturn.

Impact of Demographic and Economic Factors on Homeownership Rates

In addition to the overall homeownership index, the HPRI also includes component indices for demographic and economic factors that influence the probability of homeownership, including employment rate, educational attainment, average income, marital rate, majority rate, number of children, and the above-poverty rate.

One of the most important factors improving the long-run outlook for homeownership is increasing educational attainment. Since 1991, the share of households in which at least one member has a bachelor's degree has increased 24 percent, and is expected to increase further as Millennials continue to graduate from college and enter the workforce with improved prospects for higher-paying jobs. It is no accident that the states and markets with growing educational attainment rates are also often the same places with significant improvements in homeownership levels. Education is, as never before, a key to accessing the dream of eventually owning a home.

While the long-run benefit of increasing educational levels is clear for homeownership, it does come at a short-run cost. Attaining higher education levels takes time. As Americans, young and old, gain the intellectual capital to become more successful in the modern economy, they are also delaying lifestyle decisions, such as getting married and having children. Our research shows that, at any age, these components are important to the decision to become a homeowner. Between 2014 and 2015, the share of households with married couples declined 0.4 percent, and over the last quarter-century declined 12.5 percent. Furthermore, the average number of children per household has declined 18.7 percent since 1991.

The decline in marriage rates and the number of children per household is partly due to the seismic demographic shift from Baby Boomers to Millennials as the primary engine of economic activity in our economy today. Because of education and lifestyle decisions, young Millennials are more likely to have a college degree and less likely to be married or have children than their Baby Boomer or even Generation X counterparts at the same age. Our State of Homeownership report explores in more detail the importance of the demographic trends influencing homeownership.

2015 Homeownership Progress State Highlights

States with the highest year-over-year increase in the Homeownership Progress Index:

  1. Idaho (+5.0%)
  2. Iowa (+4.9%)
  3. Kentucky (+3.9%)
  4. Wisconsin (+3.6%)
  5. Tennessee (+2.5%)

States with the highest year-over-year decrease in the Homeownership Progress Index:

  1. Colorado (-11.3%)
  2. Louisiana (-9.0%)
  3. South Carolina (-8.4%)
  4. Massachusetts (-7.9%)
  5. Oregon (-7.5%)

2015 Homeownership Progress Market Highlights

CBSAs with the highest year-over-year increase in the Homeownership Progress Index:

  1. Riverside, CA (+8.7%)
  2. Memphis, TN (+8.5%)
  3. Nashville, TN (+7.2%)
  4. Milwaukee (+5.3%)
  5. Cincinnati (+5.2%)

CBSAs with the highest year-over-year decrease in the Homeownership Progress Index:

  1. Oklahoma City (-18.5%)
  2. Virginia Beach, VA (-16.1%)
  3. Denver (-12.6%)
  4. Richmond, VA (-12.5%)
  5. Columbus, OH (-10.2%)

2015 Educational Attainment State and Market Highlights

States with the highest Educational Attainment Index:

  1. District of Columbia (126)
  2. Vermont (120)
  3. New Hampshire (120)
  4. North Carolina (119)
  5. West Virginia (119)

States with the lowest Educational Attainment Index:

  1. Utah (99)
  2. Arkansas (101)
  3. South Dakota (104)
  4. Michigan (105)
  5. Kansas (105)

CBSAs with the highest Educational Attainment Index:

  1. Charlotte, NC (134)
  2. Buffalo, NY (130)
  3. Pittsburgh (124)
  4. Jacksonville, FL (120)
  5. St. Louis (119)

CBSAs with the lowest Educational Attainment Index:

  1. Sacramento, CA (95)
  2. Salt Lake City (97)
  3. Detroit (99)
  4. San Jose, CA (102)
  5. Oklahoma City (102)

"Homeownership's year-over-year decline in 2015 is no longer a story of economics and a housing crisis correcting the excesses of the mid-aughts. Tectonic demographic shifts taking place as the economy transitions from Baby Boomers to Millennials are causing homeownership rates to transition, too," said Mark Fleming, chief economist at First American. "Increasing educational attainment levels will improve the prospect of Achieving the American Dream in the long-run, but the timing of important lifestyle decisions will have significant impact on homeownership in the near term."

Homeownership Gap is Widening by Education Attainment Level

Our analysis of the HPRI reveals that homeownership is increasingly driven by the relationship between educational attainment and income level. People with higher education levels are more likely to earn higher incomes, and thus more likely to own homes. Not surprisingly, educational attainment and income level are the keys to achieving the American Dream of homeownership.

In fact, the relationship between educational attainment and homeownership is becoming more important. In 1990, the difference in homeownership rates among those without a high school degree versus those with a bachelor's degree or higher was 15 percent. In 2015, however, that educationally driven homeownership attainment gap has almost doubled to 28 percent. The educational benefit of higher earning power also contributes greatly to the likelihood of homeownership, as there is a 40 percent difference in the homeownership rate between those in the lowest income bracket versus those in the highest.

"Homeownership is one of the most important tools for wealth creation, and the single largest source of wealth for most low-and middle-income Americans. The homeownership gap is widening by educational attainment level," said Mark Fleming, chief economist at First American. "Education is increasingly important to achieving the American Dream of homeownership, as home prices rise and qualifying for a mortgage in most cases requires good credit and consistent documented income. The good news is that educational attainment levels are improving nationally, so we are on the right track."

Methodology

The First American Homeownership Progress Index (HPRI) is based on the IPUMS-CPS, an integrated set of data from the Census Bureau Current Population Survey (CPS). Among the supplemental surveys included is the March Annual Social and Economic Supplement (ASEC). The HPRI provides a unique view of homeownership and its underlying components over time and across geographies in the United States on an annualized basis. Homeownership itself and the demographic and economic components of the HPRI are available, nationally, by state, and for the largest metropolitan areas in the country since 1990 annually.

Each state- or market-specific homeownership or component index measures the level of the attribute relative to its level in the year 2000. An index with a current value of "102" means it has increased by 2 percent relative to its level in 2000. Conversely, an index with a current value of "97" means it has decreased by 3 percent relative to its level in 2000.

The component indices within the HPRI include: employment rate, educational attainment, average income, marriage rate, ethnicity, number of children, and the above-poverty rate. Employment rate measures the share of the working age population currently employed. Educational attainment measures the share of households in which at least one member has with a bachelor's degree. The average income component measures average total household income. Marital status measures the share of households where the head of household indicates their marital status as married. Majority rate measures the share of households where the head-of-household is non-Hispanic White. The number of children component is the average number of children per household. The above-poverty rate measures the share of households who are above the poverty level.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With revenues of $5.2 billion in 2015, the company offers its products and services directly and through its agents throughout the United States and abroad. More information about the company can be found at www.firstam.com.

Opinions, estimates, forecasts and other views contained in this page are those of First American's Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American's business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2016 by First American. Information from this page may be used with proper attribution.