Are millennials to blame for the drop in homeownership?

The percentage of people who own a home in the United States is down to levels not seen since the 1960s. Some say the problem is a shortage of first-time buyers.

Is owning a home, the so-called American Dream, becoming a thing of the past?

Probably not, but it appears to have gone on hiatus for the moment, and some economists are blaming millennials for the downturn.

The U.S homeownership rate dropped to 63.5 percent during the second quarter of 2015, down one percentage point year-over-year and the lowest the national homeownership rate has been since 1967, the U.S. Department of Commerce reported last month.

Homeownership peaked in 2004 when it reached 69.4 percent. It was at 63.8 percent during the first quarter of this year, at the time the lowest it had been since 1989, according to data released last month by the Commerce Department.

During the past 50 years, the average homeownership rate for a quarter has been 65.3 percent, with rates plunging to record lows during the mid-1960s.

While homeownership drops, renting is becoming popular again, possibly a sign that young people are striking out on their own. Whatever the reason, owner households decreased during April, May and June of this year, while renter households grew by two million during that time, according to the Commerce Department.

Overall, there were 117 million households in the United States during the second quarter of this year, about two million more than during the second quarter of 2014.

Without a doubt, the drop in the number of people who own a single-family home shows how much damage the recession did to the housing market and how slow the recovery has been.

So far, the trend has not affected the Inland Empire, traditionally one of Southern California’s entry-level markets for homeownership.

In June, home sales in the two-county region were up 17.6 percent in Riverside County and 17.9 percent in San Bernardino County compared with June 2014, according to CoreLogic in Irvine, which provides business and real estate information to its clients worldwide.

The so-called millennials – generally defined as anyone who reached adulthood around the turn of the 21st century – are being blamed by some economists and members of the housing industry for causing the drop in national homeownership, at least in part.

That’s because, just as they aren’t marrying at the same rate as earlier generations, millennials also aren’t entering the housing market as early as the age groups immediately before them.

A recent report by housingwire.com offered several possible explanations as to why that is, including that the real estate industry isn’t marketing enough through social media, where millennials get much of their information.

Also, owning a home has become so expensive in most parts of the country that a lot of millennials believe – often incorrectly – that they can’t qualify for a mortgage or make their monthly payments.

As a result, they either rent or live at home with their parents, even though housing prices in some markets are more affordable now than they were before the housing bubble burst.

Still, 92 percent of the millennials who don’t own a home now say they plan to buy one in the next four years, according to the report.

One local economist said he was not surprised by the drop in homeownership, calling it a result of the housing crisis.

“I’ve been predicting it, so it wasn’t exactly a shock,” said Jay Prag, professor of economics and finance at the Drucker School of Management at the Claremont Colleges. “I also don’t see it getting better anytime soon. I’m afraid that it’s become the new normal, at least for awhile.”

Banks and other financial institutions have tightened up on their mortgage requirements in the aftermath of the housing crisis, making it more difficult for anyone, especially first-time buyers, to buy a home.

“In some places you have to make a 20 percent down payment to qualify for a mortgage,” Prag said. “Who can qualify for that, especially in California?”

Prag blamed investment buyers – anyone who buys a home to sell it, without ever intending to live in it – with driving up housing prices, a view shared by many economists and housing officials.

Fortunately, that trend might be waning, which could mean lower housing prices in the United States over time, Prag said.

“The Chinese have invested a lot of money in our housing markets, but that might stop because their stock market isn’t doing well and they might not have as much money to invest as they have in the past,” Prag said. “If that happens it would help us because it would drive our housing prices down.”

Local economist John Husing has long railed against investors artificially driving up housing prices in the Inland Empire, but lately he has had strong words for millennials who are postponing buying a home and starting families.

“I hear this from brokers all the time, and it’s hurting the housing market because there aren’t enough first-time buyers,” Husing said. “I have two godchildren who fall into that category. Too many [millennials] are willing to stay at home and live with their parents. Well, they need to get out of mom and dad’s house and do what they’re supposed to do.”

Some of the millennial generation’s reluctance to buy a home undoubtedly can be attributed to its having come of age during the worst financial crisis since the Great Depression, and having witnessed the virtual collapse of the housing market, Husing admitted.

Whatever the reason, when there aren’t enough first-time buyers, then people who want to buy their second home – the so-called move-ups – aren’t able to sell their homes and the entire market is affected, said John Karevoll, a longtime real estate analyst in the Inland Empire.

“I think there are problems on both ends of the housing market pipeline, but I don’t feel the millennials are entirely to blame,” Karevoll said. “Some of it is because the market hasn’t recovered from what happened in 2007 and 2008. I just know that homeownership right now is very low.”

Maybe the millennials are being cautious about making what is, for most people, the largest financial investment of their lives.

“I have a son who could easily afford to buy a home, but for now he’s not going to,” Prag said. “He wants to make sure that the market is absolutely right before he decides to buy.”