Expansive mortgage subsidies created to boost homeownership have instead made houses an exclusive asset class, with prospective first-time buyers priced out.
A post on X that made the rounds over the weekend contains a chart that shows the estimated percentage of 30-year-old Americans who are both married and homeowners over time. Starting at over 50 percent in the 1950s and 60s, the rate began to collapse around 1990 and now stands at under 15 percent.
As another post points out, after correcting for marital status, young adults actually boast a higher homeownership rate than they did in 1990. While married young people are more likely to own their homes today, there are fewer of them now relative to their unmarried counterparts, who own homes at much lower rates. The Urban Institute, therefore, blames the decline in young adult homeownership on lower marriage rates and a greater share of people living with their parents rather than forming independent households.
They may still be mixing up the cause and effect, however. Lower rates of marriage and independent living among young people may be due, in large part, to their inability to purchase homes. It is much easier to begin a family or career when one either owns a house or knows they can afford one in the near future. And that has become less realistic in recent years.
As of 2024, the median age of a first-time home buyer had risen to 38 years old — a record high — up from 28 in 1991 and 33 as recently as 2021. First-time homebuyers’ share of purchases fell to a historic low of 24 percent.
The greatest obstacle to homeownership for young Americans is exorbitant home prices that have exploded relative to their incomes. In 1985, the median sales price of a home was three-and-a-half times greater than a typical household income. It’s now more than five times greater. Rising home prices have well outpaced inflation following the Great Recession and went into overdrive during the pandemic. Despite having leveled off, homeownership is still less affordable than at any point since the 1980s.
Although many — including the president — blame tight mortgage markets for expensive homes, inadequate access to credit is not the problem. At 6.7 percent, the average 30-year fixed mortgage rate is high only relative to 21st-century standards. In the 1980s and 90s, mortgage rates rarely fell below 7 percent. The peak, during the monetary tightening of 1981 to vanquish inflation, was 18.6 percent. Despite a record-high share of homeowners owing no debt on their houses, total mortgage debt has never been higher.
It is the policy of the federal government, in fact, to enormously subsidize and increase mortgage debt to purportedly ease the path to homeownership. The vast majority of mortgages issued in the United States are purchased by government-sponsored enterprises such as Fannie Mae and Freddie Mac, which assume the risk of default and effectively subsidize borrowers. Hundreds of billions of dollars in additional mortgage debt are directly insured by the federal government each year, through agencies such as the Federal Housing Administration, the Department of Agriculture, and Veterans Affairs. A network of Federal Home Loan Banks provides credit to mortgage lenders at below-market rates to turn around. The Federal Reserve has absorbed over $2 trillion in mortgage-backed securities, and its regulations on banks incentivize them to hold even more government-backed mortgages.
The result of these interventions is a gargantuan mortgage finance system controlled and supported almost entirely by the government. Yet the deluge of housing credit it created is, perversely, a big part of the explanation for why homeownership has become less attainable for many prospective first-time buyers.
By pouring trillions upon trillions of dollars into the housing market — endlessly inflating demand without targeting supply — federal mortgage subsidies have turned houses into a highly lucrative asset class. They enable borrowers to spend inordinate amounts of money on a home, which makes financial sense so long as another borrower can procure an even larger mortgage loan in the future.
The real beneficiaries of subsidized housing credit are not young people looking to buy their first home, but older Americans who bought their first home decades ago. Existing homeowners have seen their houses’ values appreciate far beyond their initial mortgage balances. They are able to cash out at such inflated values only because someone else is able to borrow that much to buy it.
Young people who were born too late to break into the housing market are the losers, having never gotten the chance to build equity or see their home appreciate. For many prospective homebuyers, their only option is to take out a colossal mortgage they cannot afford, backed by the U.S. government. What they need instead is lower home prices, which may only arrive if housing credit becomes tighter.