First American Financial Corp. released its inaugural First American Homeownership Progress Index (HPRI), which tracks homeownership rates and the underlying demographic and economic factors that influence the probability of homeownership at national and state levels over time.
The index is 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.
The inaugural 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 7 percent above the low point of homeownership, which was set 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,” First American Chief Economist Mark Fleming said. “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.”
At the state level, the changes in homeownership rates between 1990 and 2014 vary greatly. For example, when comparing 1990 with 2014, Washington D.C. homeownership levels have increased the most (155 percent), followed by Colorado (45 percent) and Alaska (36 percent). The states with the largest declines in homeownership include Tennessee (-12.6 percent), Utah (-11.8 percent) and Arkansas (-11.3 percent).
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 with 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 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).
In addition, 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, that gap has nearly doubled to 28 percent. 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,” Fleming said. “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.”
Although traditionally higher levels of educational attainment and increases in children per household are correlated with increases in homeownership rates, other factors 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 percent) since 1990. Similarly, while Washington D.C. has seen a decrease in children per household, it also has seen an increase in educational attainment and income, leading to higher homeownership rates over time.
Looking at the past year, the five states with the largest year-over-year increase in the HPRI 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 decrease are Washington D.C. (-23.3 percent), Nevada (-15.3 percent), Massachusetts (-12.3 percent), Michigan (-12.0 percent) and Oregon (-11.4 percent).