First American Homeownership Progress Index Falls 1.6 Percent In 2014

- Washington D.C., Colorado and Alaska have made the most homeownership progress since 1990, says Chief Economist Mark Fleming -


November 3, 2015, Santa Ana, Calif.,

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released its inaugural First American Homeownership Progress Index, which tracks homeownership rates and the underlying demographic and economic factors that influence the probability of homeownership at national and state levels over time. It’s available as an interactive tool that can be tailored to showcase how trends in employment, education, income, marital status, minority status, children per household and poverty impact homeownership rates over time across the United States at national and state levels. 

First American Homeownership Progress Index

The inaugural First American Homeownership Progress Index (HPRI) fell 1.6 percent in 2014, from an index value of 68 in 2013 to 67 in 2014. The HPRI, which is based on Integrated Public Use Microdata Series (IPUMS) census data from 1990 to 2014, is down 7 percent from the high point of homeownership in 2005. Even though homeownership is down relative to the peak, the index is currently 7 percent above the low point of homeownership, which was set two decades ago in 1994.

“While, nationally, the Homeownership Progress Index has fallen in the last year, it is important to note the trends and relationship between the underlying factors that influence homeownership rates,” said Mark Fleming, chief economist at First American. “Historically, higher rates of marriage and households with more children lead to higher homeownership rates. In addition, the higher the level of educational attainment, the higher the homeownership rate. It is important to monitor these factors and compare them over time and across geography to better understand homeownership progress. Demographic factors and lifestyle and economic choices all influence the homeownership rates, which can vary dramatically over time and across states,” Fleming added.

At the state level, the changes in homeownership rates between 1990 and 2014 vary greatly. For example, when comparing 1990 to 2014, Washington D.C. homeownership levels have increased the most (155.0 percent), followed by Colorado (45.0 percent) and Alaska (36.0 percent). The states with the largest decline in homeownership include Tennessee (-12.6 percent), Utah (-11.8 percent) and Arkansas (-11.3 percent).

Impact of Demographic and Economic Factors on Homeownership Rates

In addition to measuring overall progress in homeownership rates, the HPRI also focuses on the underlying demographic and economic factors that influence changes in homeownership rates, including employment, educational attainment, income, marital status, ethnicity, number of children per household and poverty status. In particular, improvement nationally in the HPRI since 1990 can be strongly correlated to a more than 100 percent increase in the share of households with post-secondary education. All states show consistent positive growth in educational attainment compared to their 1990 levels. However, the states with the greatest increase in educational attainment since 1990 are Mississippi, Tennessee and West Virginia. The states with the least improvement in educational attainment since 1990 are Arizona, Washington and Wyoming.

Additionally, a headwind to homeownership progress has been the decline in the number of children per household across all states from 1990 as compared to 2014. The largest decline was seen in Washington D.C. (-77.0 percent), followed closely by Vermont (-72.8 percent) and Maine (-72.3 percent). The states with the smallest declines in children per household between 1990-2014 are: Maryland (-7.0 percent), Nevada (-7.5 percent), and Connecticut (-7.9 percent). 

Conflicting Demographic and Economic Factors in Tennessee and Washington D.C.

While traditionally higher levels of educational attainment and increases in children per household are correlated with increases in homeownership rates, other factors in the index could reduce homeownership. For example, Tennessee has seen a rise in educational attainment from 1990 to 2014, however, the state’s employment level has decreased (-54.9%) since 1990. Similarly, while Washington D.C. has seen a decrease in children per household, it has also seen an increase in educational attainment and income, leading to higher homeownership rates over time.

2014 Homeownership Progress State Highlights

  • The five states with the largest year-over-year increase in the Homeownership Progress Index are: Virginia (+11.5 percent), Washington (+6.4 percent), Colorado (+6.1 percent), South Carolina (+5.7 percent) and Alabama (+5.6 percent).
  • The five states with the largest year-over-year decrease in the Homeownership Progress Index are: Washington D.C. (-23.3 percent), Nevada (-15.3 percent), Massachusetts (-12.3 percent), Michigan (-12.0 percent) and Oregon (-11.4 percent).

2014 Educational Attainment State Highlights

  • The five states with the largest year-over-year increase in the educational attainment index are: Mississippi (+24.8 percent), Kentucky (+22.2 percent), Arkansas (+16.2 percent), Kansas (+15.9 percent) and Utah (+14.3 percent).
  • The five states with the largest year-over-year decrease in the educational attainment index are: Oklahoma (-12.6 percent), Alabama (-10.9 percent), Washington (-8.0 percent), Arizona (-7.6 percent) and Montana (-6.6 percent).

2014 Marriage Rate State Highlights

  • The five states with the largest year-over-year increase in the marriage index are: Oregon (+24.4 percent), Mississippi (+16.7 percent), New York (+16.0 percent), Iowa (+10.0 percent) and Connecticut (+9.3 percent).
  • The five states with the largest year-over-year decrease in the marriage index are: Massachusetts (-16.3 percent), Nevada (-16.3 percent), D.C. (-12.7 percent), Maine (-12.2 percent) and New Mexico (-12.0 percent).

Homeownership Progress Close Up: Income & Education

Income level and educational attainment are said to have complimentary effects on the homeownership rate. Through time and geography, the household income index shows an upward, yet cyclical trend since 1990. On the other hand, the educational attainment index has consistently trended upward since 1990. A look at the actual values underlying the indices reveals that these two factors have had a significant impact on homeownership progress. In 1990, the homeownership rate difference for those without a high school degree versus those with a graduate degree was 15 percent. In 2014, however, that gap has nearly doubled to 28 percent. Logically, income differences also contribute greatly to homeownership, as there is a 40 percent homeownership rate difference in those in the lowest income bracket versus those at the highest.

“While homeownership progress declined between 2013 and 2014, progress varies across states,” said Fleming. “Underlying the changes in progress, however, are improving income levels, decreasing racial and gender inequality, and increasing educational attainment, which all correlate with growing homeownership rates. In contrast, trends in lifestyle choices, such as delaying marriage or having fewer children, are impeding homeownership progress in the short-term. When these traditional homeownership lifestyle trends increase, demand for homeownership will follow.” 

Next Release

The next release of the First American Homeownership Progress Index will be posted on March 15, 2016.

Methodology

The methodology statement for the First American Homeownership Progress Index is available at http://www.firstam.com/economics/homeownership-progress-index

Disclaimer

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. © 2015 by First American. Information from this page may be used with proper attribution.

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 $4.7 billion in 2014, 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

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