In this episode of The REconomy Podcast™ from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi commemorate National Homeownership Month with a deep dive into the state of homeownership, including how it’s measured, the demographics of homeownership and what the future holds for prospective buyers.
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Listen to the REconomy Podcast™ Episode 116:
“There are a lot of different factors at play. Over the near term, we have demographically driven household formation that is supportive of more homeownership. Millennials are still entering their prime home-buying years. But, to be fair, their ability to buy is a big question mark at the moment. Will wage growth keep up with, or hopefully outpace, home prices and rates? That would certainly help on the affordability side.” – Odeta Kushi, deputy chief economist at First American
Transcript:
Odeta Kushi - Hello and welcome to episode 116 of The REconomy Podcast, where we discuss economic issues that impact real estate, housing and affordability. I am Odeta Kushi, deputy chief economist at First American and here with me is Mark Fleming, chief economist at First American. Hey Mark, I don't know if you're aware, but we're actually heading into a very important month.
Mark Fleming - Very important? Well, it's not the start of spring home-buying and we're getting close to Memorial Day, so the obvious one is the start of summer.
Odeta Kushi - Not quite though, that is very exciting. June is National Homeownership Month.
Mark Fleming - Of course, that's right, our favorite real estate month of the year. So, I'm assuming today then we're diving into homeownership, how we got there, how it's measured, who owns homes, and what the future might look like.
Odeta Kushi - A very ambitious agenda, but yes, you are correct. And we will, of course, be starting off with a little bit of homeownership history.
Mark Fleming - Perfect, because you know how we love our economic homeownership history on REconomy.
Odeta Kushi - We sure do. And some of our listeners may be surprised to learn that homeownership wasn't always the default aspiration it is today. In fact, in the 1890 to 1940 period, the homeownership rate fluctuated in the 43% to 48% range.
Mark Fleming - So fewer than half of all American households actually owned their homes. That's a very different world than the one we know now.
Odeta Kushi - Well, that's because homeownership started to rise after that period. During the 1940 to 1960 period, the homeownership rate rose by over 18 percentage points from 43.6% to 61.9%. So, the real question is, what changed?
Mark Fleming - Indeed, because that's a pretty significant change. Something had to have caused such a big change like that. First and foremost was the big surge in overall economic growth that occurred post-World War II that significantly increased household incomes. A significant number of households in prime home-buying age groups at that time. The evolution or the revolution of FHA's mortgage financing, the GI Bill of Rights, enhanced interurban transportation. We'll have to get into that in another episode. And the development of large-scale housing subdivisions that effectively created affordable homes for so many people. I'm channeling the Wonder Years TV show right now.
Odeta Kushi - That's quite the list. After the Great Depression and World War II, as you mentioned, the federal government stepped in with a whole suite of housing policies, like the creation of the Federal Housing Administration, or FHA, in 1934 and the GI Bill in 1944, which helped veterans access affordable mortgages.
Mark Fleming - And. of course, the 30-year, fixed mortgage became standard. Suburbia exploded, Levittowns, highways and all. We were building the ‘burbs. By 1960, the national homeownership rate had gotten to 62%.
Odeta Kushi - Well, since 1960, the homeownership rate has remained in the 63% to 69% range. It peaked in 2004 at just under 70%, specifically 69.2%.
Mark Fleming - Of course, I would expect no less than this level of precision from you. We always need that tenth decimal place.
Odeta Kushi - Sarcasm noted, I'm sure some of our listeners appreciate the precision. Now, we should mention that the nearly 70% homeownership rate was during the housing boom years, just before the 2008 crash pulled it back down.
Mark Fleming - Yes, and an argument can be made that perhaps that rise was artificially driven by some, shall we say, financial innovations in mortgage financing lending standards that allowed people to buy more house with a lot lower monthly payment, ultimately with consequences. But we're moving right along here.
Odeta Kushi - Moving right along. Now as of Q1 2025, the national homeownership rate is 65.1%. Not too hot, not too cold. But it is a number that gets tossed around a lot. So, let's talk about what it actually measures.
Mark Fleming - Right. That's a great point because the decline in the homeownership rate post-2005 wasn't just housing correction driven, which we will explain in a second. That's because the homeownership rate is calculated as the number of owner-occupied housing units divided by the total number of occupied units, that is owners divided by owners and renters.
Odeta Kushi - And that means that the rate can fall even if the number of homeowners doesn't decline, say if there's an increase in renter households.
Mark Fleming - And speaking of buying versus renting, let's talk about what actually drives the decisions to own a home. Economists often use something called the user cost of capital framework to compare the cost of owning to the cost of renting.
Odeta Kushi - That's right. And it considers factors like mortgage interest, property taxes, depreciation, maintenance costs, and expected house appreciation, plus the opportunity cost of your down payment.
Mark Fleming - And think of it like this. If owning a house costs $30,000 a year all in and renting a comparable home costs $28,000, you might still choose to buy that house if you expect your home to appreciate in value. But if you're not sure about that expected appreciation, maybe renting might make more sense.
Odeta Kushi - But I mean, let's be honest here. Most people aren't pulling out a spreadsheet and computing the user cost of owning a home compared to renting. I know.
Mark Fleming - Exactly. This is why I was smirking a little bit earlier, because I bet you did with at least two significant digits for that user cost calculation precision. Of course you do.
Odeta Kushi - Of course I did. Actually, I have a spreadsheet for everything. For most people, the decision to buy is often first driven by lifestyle choices. It's about schools, stability, and even pets. And then, of course, you figure out how much you can afford to buy.
Mark Fleming - Exactly. That's the key is deciding after you figured out you want to be a homeowner, then you talk about what can I afford or what is the affordability or, more specifically, how much can I afford, which we know is strained in today's market. According to our latest First-Time Home
Buyer Outlook Report, the median renter can only afford about 28% of the homes that are for sale in today's market.
Odeta Kushi - You would think in sort of an equal market, or a balanced market, that the median renter could afford 50% of homes for sale. So that's saying quite a lot. With house prices still high and mortgage rates bouncing between 6.5% to 7%, it is a challenging environment for potential buyers. Consider that for a $400,000 home with a 20% down payment, your monthly principal and interest at 6.8%, which is where we're at, give or take right now, is about $2,100.
That's more than 50% higher than when rates were around 3% in 2021.
Mark Fleming - Big difference. And yet, people still buy because life doesn't wait for the perfect rate. Very nice, right?
Odeta Kushi - Very nice. That was nice. And, speaking of life, when we talk about homeownership and the lifestyle choices that drive the decision to buy or not buy a home, we also have to talk about demographic shifts.
Mark Fleming - That's right, because generational waves tend to have big impacts on the housing market because they shape the demand dynamics based on where in the housing consumption life cycle that generation is. When we are young, we tend to live with our parents. Then, when we eventually move out, some later than others, we form our own households and rent for a while before finally transitioning into homeownership. Then, as we age, it's typical to see consumption of housing increase as we need, and can afford, more space for ourselves, our children, our backyards, our barbecues, all the stuff that makes life great. But, eventually, our demand for housing then begins to decline as we downsize, move in with our children, or even into a retirement community, and ultimately transition out of homeownership.
Odeta Kushi - So, I mean, take millennials, my generation. We get a bad rap when it comes to homeownership. I don't know if you recall the avocado toast meme. That we can't afford homes because we're too busy spending our money on avocado toast. What generation doesn't like avocado toast? I digress.
Mark Fleming - Indeed. Indeed. I'm Generation X, I like avocado toast, but it's really funny that you got the meme and we didn't.
Odeta Kushi - Exactly. So that millennial misnomer came about because the homeownership rate for millennials lags behind their generational predecessors. So, at the same age of 30, the millennial homeownership rate is about six percentage points lower than Gen X at the same age and seven percentage points behind the Baby Boomers when they were 30. So, again, people were looking around and saying, well, surely the homeownership rate is lower because millennials aren't interested in buying homes. But that's just not the case. Millennials have prioritized their education, which takes time and money, have delayed marriage and family formation, which we know are motivators for, and highly correlated with, homeownership. So previous generations made these lifestyle choices in their 20s. Millennials are making them in their early to mid-30s. And, as evidence of this trend, the homeownership rate between 40-year old millennials and Gen X is significantly lower at just two percentage points.
Mark Fleming - So, eventually everybody who wants to become a homeowner is really trying to do that. And millennials are still in their prime home-buying years and increasing the number of owned households today. Generation Z, just behind them, is just beginning to enter the housing market. And, given their point in the housing consumption life cycle, probably mostly forming renter households at the moment.
Odeta Kushi - Right. And we're not talking about this in depth in this podcast, but we can also talk about the boomers who are staying in their homes longer.
Mark Fleming - Staying in their homes longer and going to eventually do the aging out piece of the housing life cycle.
Odeta Kushi - Maybe, just later than previous older generations did. So, all of that matters when we're talking about housing demand and supply dynamics. But, since we're talking about housing demand, we have to bring up the headship rate. Now I'm getting to the maybe wonky side of real estate economics, but such an important term. It's the share of people heading their own households.
Mark Fleming - No! Exactly.
Odeta Kushi - So, demographers will typically multiply the population within each age cohort by its respective headship rate and then sum it to get total households. So, according to census data and some recent analysis from Evercore or ISI, since headship rates increase with age, the baseline number of households that should be formed each year by people aging into cohorts with higher headship rates is about 1.2 million between now and 2027.
Mark Fleming - And to be clear, that has implications for all housing demand, not just homeownership, both renting and buying.
Odeta Kushi - Right, if more households form, that boosts demand for all housing. That also includes things like immigration. That also increases demand for housing, when immigration goes up and vice versa.
Mark Fleming - That's right. So a good tailwind when millions of new households asking for homes over their heads. But okay, so what's next for homeownership?
Odeta Kushi - That's right. Well, if it's not clear by now, there are a lot of different factors at play. Over the near term, we have demographically driven household formation that is supportive of more homeownership. Millennials are still entering their prime home-buying years. But, to be fair, their ability to buy is a big question mark at the moment. Will wage growth keep up with, or hopefully outpace, home prices and rates? That would certainly help on the affordability side.
Mark Fleming - And then, of course, there's supply. The U.S. has underbuilt housing for over a decade. Inventory has been increasing nationally, but it is still historically low.
Odeta Kushi - But we'll take the progress. And we know that builders have been building at lower starter home price tiers.
Mark Fleming - Absolutely. A welcome development. Get it?
Odeta Kushi - Took me half a second, but I do get it. We also know that policy will play a big role in the outlook for homeownership. That's been in the news a little bit more these days. Zoning reforms and other housing regulations could all affect ownership rates in the future. And this all matters because homeownership is, of course, a place to live and quintessential to the American Dream, but also a primary driver of wealth creation. And we want future generations to have this opportunity.
Mark Fleming - Hahaha. Absolutely. In the immortal words of the Talking Heads, home is where I want to be, right? This must be the place.
Odeta Kushi - An ‘80s reference at the very bitter end.
Mark Fleming - Just in time, it took the whole episode to get there. I did it. How could we not do it, right?
Odeta Kushi - But you did it. Well done. Well, we've covered a lot today. We know that the homeownership rate is an important metric that we track every quarter, but it's the driving forces of that rate that we really should be paying attention to. So, thank you for joining us on this episode of The REconomy Podcast. If you have an economics-related question you'd like us to feature in the future, you can email us at economics@firstam.com. And, as always, if you can't wait for the next episode, you can follow us on X. It's @OdetaKushi for me and @MFlemingEcon for Mark. Until next time.
Thank you for listening, and we hope you enjoyed this episode of The REconomy Podcast™ from First American. We're pleased to offer you even more economic content at firstam.com/economics. This episode is copyright 2025 by First American Financial Corporation. All rights reserved.
