Homeownership, Net Worth and Future of Housing?

The housing sector has played an important role in our economy. While rebounding soundly from the Great Recession, the housing sector now appears to be taking that inevitable pause.

Where it goes from here remains to be seen. The issues facing the housing sector over the long term are many, possibly including a changing national "culture" on housing (i.e., has the "American Dream" of homeownership been conceded?).

Homeownership has been declining since 2004. Homeownership rate is down 5.5 percentage points, or the equivalent of 6.5 million potential proud homeowners.

The homeownership rate has declined across all age segments. The factors influencing homeownership are many, including millennial demographics, housing price levels, negative equity and housing turnover, metropolitan market migration, student debt loads, national policy and even the lingering memories - or nightmares - of the Great Recession.


Two of the largest declines in homeownership rates occurred in the age segments of under 35 years of age and 35 to 44 years of age. These are age groups that represent initial home buyers and those families ready to upgrade to their second and larger home.


And there is one other critically important variable that may be impacting homeownership: household wealth or Net Worth.

These two age segments (under 35 years of age and between 35 and 44 years of age) are also groups that have not seen noticeable increases in net worth. Net worth data is from the Federal Reserve's triennial Survey of Consumer Finances. This chart shows median net worth in 2016 and annual growth rate in net worth from 1989 to 2016.

For example, the 35 to 44 Age Group had a median net worth of $59,800 in 2016. Since 1989, net worth for families traveling through this age group increased at only 0.2% per year. Or stated another way, 27 years later, the wealth of families with head of household in this age group in 2016 have not gained much ground compared to the wealth of families in this age group in 1989. While over this same period, home prices are up 2.6X; stock prices have climbed 7.2X.


Households within these age groups achieved significant gains in net worth prior to the recession - both increase in equity as housing values rose (for homeowners) and buoyed by a rising stock market. By 2004 (peak year), the net worth for the age segment under 35 years of age was 81 percent higher than the households that comprised this cohort in 1989. For the age segment 35 to 44 years of age, net worth in 2007 (peak year) gained 56% compared to 1989 levels.

Unfortunately, net worth was seriously eroded during the Great Recession. And there has not been an appreciable recovery. The age segment under 35 years of age saw a 23% decline in net worth since 2004 peak and the age segment 35 to 44 years of age felt a 32% deterioration in their wealth since 2007. And the recovery through 2016 has returned the age segment under 35 years of age to a net worth level 41% better than 1989. But, for the age segment 35 to 44 years of age, their wealth is only 6 percent higher than the households that comprised this group in 1989.


There is always the "chicken and egg" debate on which comes first: net worth or homeownership. However, it may be extremely important to understand the drivers of net worth for these age segments, strategies to improve their net worth positions and how this will impact the U.S. housing sector and national housing policy in the future. Or, alternatively, do we need to reshape our "culture" and expectations on housing and homeownership?