25-34-Year-Old Population Has Been Rising, But Not Household Formation
First-time homebuyers accounted for 31 percent of all home sales transactions of REALTORS® in May 2018, according to the May 2018 REALTORS® Confidence Index Survey. The share of first-time buyers has hovered at about this level for most of the housing market’s recovery since 2012. The share of first-time buyers not increased even with the growing population of 25-34-year-olds because of slow household formation and the delayed transition to homeownership.
The 25-34-year-olds now make up the largest population age group, at 45.3 million as of July 2017, about six million more than in 2009. However, the number of households headed by 25-34-year-olds stayed has remained stagnant at about 20 million, as young adults moved into the 25-34 age group during the economic downturn and an economic recovery with a slow and modest recovery in real wage wages (negative to zero real growth from 2010‒2014 and one percent growth from 2015‒2017).
In other words, although the 25-34-year-old population has been strongly rising, this is not translating into rising household formation, meaning that headship rates have been declining (ratio of households to population). To note, the decline in the headship rate started in the 80’s, but headship rates have continued to trend down. This may be due to a confluence of economic (e.g., slow wage growth, student debt burden, weak credit profiles) and demographic or lifestyle factors (e.g., delayed marriage, multi-generational living, etc.).
Headship rates among those in the 25-34 age group continue to decline in line with the increase in young adults living with their parents. In 2017, 31.5 percent of young adults lived with their parents. The rise in the fraction of adults who live with their parents started in 2003, so one could not attribute all the increase to the economic recession of 2007-2009 and its aftermath. However, there was an uptick from 2011 (31.2 percent) through 2014 (32.1 percent). Since 2015, fewer 18-34-year-olds have been living with their parents, but the fraction still remains high compared to the 80s’ and 90s. The upward shift may be because of socio-cultural factors (preference for multi-generational living to support aging parents) as well as economic factors (e.g. student debt burden, more adults going for higher education). The median age at first marriage continues to trend up, with the median age for women at 27.4 years and 29.5 years for men.
Moreover, among the 25-34-year-olds who do form households, the fraction who decide to become homeowners at this period in their lives has also only modestly increased. The homeownership rate among the under 35-year-olds stood at 35.3 percent in the first quarter of 2018. The homeownership rate was on a modest upward path in 2017, dipped again in the first quarter of 2018, perhaps because homes have become less affordable and due to the lack of inventory of homes for sale in the lower price range.
However, the data shows that homeownership appears to be only being delayed, as evidenced by the steady but modest rise in homeownership rate among 35-44-year-old headed households, the age group that some of the 25-34-year-olds from 2006 onwards are in as of 2018. The homeownership rate among 35-44-year-olds rose from 58 percent in 2015 Q2 to 59.8 percent in 2018 Q1. This indicates that young adults (under 35) may eventually become homeowners in their older years (35-44 or even 45-54).
In summary, first-time buyers have not significantly embarked into homebuying as they have been slow to form their own households and as they have delayed homeownership, most likely related to economic and socio-cultural reasons. However, the data indicates that homeownership is only being delayed and over time, as the financial capacity of young adults improve and they start forming households, they may also just want to also become homeowners.
 For example, a 25-year old in 2006 will be 37 years old in 2018, while a 32-year old will be 44 years old.