“Since most kids won’t live with their parents forever, these young adults represent ‘pent-up demand’ for housing that the recovery should unleash. Problem is: the kids aren’t moving out yet.”
Are Millennials holding back the housing recovery?
Housing formation is lagging behind other measures of a housing recovery such as existing home sales, foreclosures, home prices, and construction starts, and the reason may be that Millennials are choosing to either live at home with their parents or a renting with roommates rather than setting up housekeeping on their own, according to real estate market trends tracked by Trulia.
The share of 18-34 year-olds living with their parents rose from around 27 percent before the economic collapse to above 31 percent in 2013, Trulia Chief Economist Jed Kolko recently blogged. This translates to fewer households being created. Typically, Kolko observed, 1.1 million new households are added each year in the U.S. But only 450,000 new households were created annually between the first quarter of 2008 to the first quarter of 2011.
As a result, annual construction starts dropped during this period from a norm of 1.4 million to below 600,000. Most recently, according to real estate market trends tracked by Trulia, only 521,000 households were created between the first quarter of 2012 and the first quarter of this year. (According to the most recent National Association of Realtors report, while sales of previously-owned houses is 15 percent higher than it was a year ago, June sales were down 1.2 percent from the previous month).
Boomerang Millennials choosing to delay homeownership is a primary factor in the household formation slowdown, Kolko states. “Since most kids won’t live with their parents forever, these young adults represent ‘pent-up demand’ for housing that the recovery should unleash. Problem is: the kids aren’t moving out yet.”
The primary reason is jobs. The Millennial unemployment rate in June was 16.1 percent. Almost half (44 percent) of Millennials without a job live with their parents compared with one-fourth who do have jobs. But even employed Millennials are more likely to live with their parents in 2013 than before the recession, Kolko writes.
Parents are advised to be patient: “You don’t get a job one day and move out of Mom and Dad’s the next,” Kolko notes. “It could still take years before young people have built up the savings and economic security to leave the nest.”
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.