SANTA ANA, CA—The outlook for homeownership demand belies the slight year-over-year decrease in that demand, First American Financial Corp. said Thursday. Due in part to Millennials putting off marriage longer than their parents' generation did, for the moment potential homeownership demand is off 6% from the pre-recession peak, and is now “at the same level as it was in 1990, 27 years ago,” says Mark Fleming, chief economist with First American.

That being the case, Fleming points to the 0.4% Y-O-Y decrease in demand as measured by First American's Home Ownership Progress Index between 2015 and 2016, and observes, “Even as Millennials continued to delay marriage and family formation and pursue higher education levels, the Homeownership Progress Index only declined moderately” on an annual basis. “Yet the prospect for future homeownership demand looks hopeful, as more households increase their educational attainment level and thus their prospect for higher income.”

Moreover, he says, “Small changes in potential homeownership demand hide the large amount of variation in markets across the country. The underlying factors that the Homeownership Progress Index accounts for”—including lifestyle, societal and economic data—“can vary substantially by region of the country and market. Regions or markets with stronger local economies and that can attract increasingly educated Millennial households will have stronger homeownership demand in the future.”

On a Y-O-Y basis, the five states with the greatest Y-O-Y increase in potential homeownership demand are: Nevada (up 2.1%), Louisiana (1.5%), Kentucky, (1.4%), Idaho (1.4%) and Ohio (0.8%). Conversely, the five states that saw the greatest Y-O-Y decrease in potential homeownership demand are: Delaware (-3.3%), Maryland (-2.3%), Oregon (-2.3%), Rhode Island (-2.2% and Alabama (-2.2%). On a metro area basis, Fleming says, “The difference between San Jose, CA, the market with the biggest gain in potential homeownership demand and Birmingham, AL, the market with the biggest decline in potential homeownership demand, was nine percentage points.”

He explains, “Changing demographic and economic factors either increase or decrease someone's potential to be a homeowner. For example, increasing marital rates, household size, educational attainment, income, and improving economic conditions all increase potential demand for homeownership.

“The HPRI measures the potential for homeownership demand based on these underlying factors,” adds Fleming. “For example, the potential for, or likelihood of, homeownership may increase because of rising educational attainment or income growth.”

Instant Insights /

Prospect for Future Home Demand is 'Hopeful'

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