Additional Coverage:
- The housing affordability crisis isn’t just crushing millennials—it’s squeezing out buyers in their 40s, 50s and beyond too (fortune.com)
New research from the Federal Reserve Bank of New York reveals a striking trend: the average age of first-time homebuyers securing a mortgage has remained steady in the mid-30s for the past twenty years. This finding challenges the common assumption that rising home prices primarily delay younger buyers from entering the market. Instead, a recent study by the American Enterprise Institute’s (AEI) Housing Center expands on these findings, showing that affordability challenges are impacting prospective homeowners across all age groups.
Ed Pinto, co-director of AEI’s Housing Center, explains that declining purchasing power reduces homebuying not only among 28-year-olds but also among buyers in their late 30s and even late 40s. The result is a widespread decrease in homeownership rates. Pinto highlights a troubling development: “The less-rich are getting squeezed out, and that trend is uniform across all age groups.”
The core issue isn’t mortgage rates, which currently hover around historical averages, but rather the growing gap between median home prices and household incomes. This disparity has increased sharply over the past two decades-from 4.3 times income in 2003, to 5.1 in 2017, and nearly 6.0 today-making homes significantly less affordable.
Data from the Census Bureau’s American Community Survey confirms that homeownership has dropped by 8% to 10% across every age bracket between 2000 and 2022. For example, ownership among 35-year-olds fell from 60% to 50%, while 40-year-olds saw a decline from 70% to 59%, and those in their 50s dropped from 78% to 69%.
Income levels further underscore the divide. Among first-time buyers in 2022, only 25% of families earning between $50,000 and $75,000 owned homes, with a slight increase to 30% for those earning $75,000 to $100,000.
In stark contrast, homeownership rates soar to 70%-80% for households earning $175,000 or more. Pinto observes that wealthier families are increasingly capturing a larger share of homeownership opportunities, while middle- and lower-income groups are being left behind.
Looking ahead, Pinto notes that the housing market has begun a gradual correction following a peak in early 2022, with home price appreciation slowing to about 1% year-over-year as of March. The AEI projects modest price declines through 2026 to 2028.
“As long as prices stabilize and incomes rise around 3% annually, affordability can improve,” Pinto says. However, he warns that without significant changes, many lower- and middle-income families may remain sidelined for years.
A major barrier to affordability is the severe shortage of housing supply, largely driven by restrictive zoning laws that limit the availability of lots for starter homes. To address this, Pinto advocates for state and local initiatives to moderately reduce lot sizes, enabling builders to construct more small, affordable homes. He estimates such measures could reduce prices by 15% to 20%, thanks to lower land costs and smaller home footprints.
In conclusion, the challenge of homeownership affordability extends beyond just young buyers-it affects families across all ages. To reverse this trend, America must embrace policies that increase housing supply, ensuring more potential buyers can achieve the dream of homeownership.