As a student of economics, I have always also been fascinated by the study of demographics. Here’s one of the most remarkable demographics trends that is shaping the America that we live in today.
- More than 32% of Americans age 18-34 are currently living at home with mom and dad.
- This “millennial” population range encompasses approximately 75 million Americans, which means that 25 million of them live at home with their parents.
These stats will go a long way in helping us understand where are housing prices are headed in the US. Now, we can sift through mountains of data to figure our where prices are going. Or we could just have parents across the United States knock on the door to their spare bedroom and ask the current twentysomething resident when he plans to move out.
Beyond this population segment alone, the housing market is also heavily driven by another demographic trend knows as household formation. The more households we create, the more upward pressure is exerted on housing prices. So, the sooner Junior gets out of the basement and into a serious relationship, the better. And here’s the good news: contrary to the popular perception of the Millennial generation, there is evidence they ain’t thrilled about living in mom and dad’s basement and really do want a home of their own.
If this trend persists, the outlook for housing in 2017 will remain strong. And, data over the last several years has seen a dramatically improving housing market. The median price for both existing and new homes is above its pre-recession peak (see figure 1). Despite a steady expansion of the home building industry since the great recession, home vacancies (supply) continues to shrink (see figure 2). Mortgage rates have inched upwards but remain near their recent historic lows. And, the outlook for the US economy based on my CHIME model is very encouraging:
- Consumer confidence – very strong (at a 15 year high)
- Housing – Home prices have steadily improved from 2010 through 2016 dramatically increasing home owner’s equity.
- Interest rates – 30 year US mortgage rates bottomed at 3.4% in the summer of 2016. A spike in the US 10-Year Treasury from 1.4 to 2.5% has pushed US mortgage rates higher as well. However, at their current 4.4% level, they remain close to all-time historic lows making home ownership still very affordable.
- Manufacturing – showing expansion at 53.2% in Nov 2016.
- Employment – the unemployment rate is near a multiyear low of 4.7%.
If the market can unleash the home-buying potential of the Millennial generation in the coming years, it would turbo-charge this already solid housing sector. How much pent-up demand are we talking about? A lot. According to the most recent census data “living in parents’ home” is the most common living arrangement among young adults. A stunning 32.1% of Americans aged 18-34 live with their folks. That edged out “married or cohabitating in own house,” which describes 31.6% of that demographic group. Another 22% lives in “other” situations, which includes living with grandparents or other relatives.
Young men are least likely to leave the nest in a timely fashion. Over one-third of men 18-34 live with their parents as compared to 29% of women in that demographic.
Compare today’s figures to the 1960s when just 20% of young adults lived with their parents and a whopping 62% were married or cohabitating in their own pad.
How to explain this? One reason is purely economic – jobs, or the lack thereof. Since the Great Recession job growth for non-college educated young adults has stagnated. In 2014, males age 25-34 with only a high school degree had an unemployment rate of 12.2%. It’s tough to move out of the basement without a decent job.
But there’s also a sociological reason for this generation’s failure to launch. Young adults are slower to commit to romantic relationships and much slower to marry than previous generations. Just 26 percent of 18-to-33-year-olds are married. By comparison, 36 percent of Gen Xers, 48 percent of Baby Boomers and 65 percent of the Boomers’ parents’ generation were married during that same period of life.
Still, Millennials at least want to buy a home of their own, if they can find one that’s affordable and suits their sensibilities. In a recent survey by Apartment List, 79% of Millennials who are currently renting said they want to buy a home. The biggest obstacle, according to respondents, is affordability with 77% saying that’s their biggest barrier to ownership. Interestingly, only 40% said they are waiting to settle down or get married before buying a home.
Millennials who have the money to buy a home sometimes struggle to find one that appeals to them. Generally speaking, they are looking for walkable neighborhoods with nearby shopping and access to public transit. Young adults often turn up their noses at the oversized McMansions of their parents’ generation. They want/need affordability, flexibility and a sense of style in their houses. While research shows Millennials have no inherent bias against the suburbs, their preferences are currently more often met in urban areas.
I think we’re on the verge of a housing boom fueled by Millennial buyers. I don’t know a single young adult who wants to be living at home. We love to make fun of this generation, but it’s full of smart, ambitious people. As the economy continues to improve, and builders create more homes that appeal to young first-time buyers, the Millennials will move out of the basement to become a major driver of housing growth.