Arizona Home Search

Login : Register to Get Homes by Email

The kids aren’t buying homes: Generation Y may be holding back the housing recovery

The number of “missing households” — that is, Americans who would be owning or renting a home now if prerecession economic trends had continued — hit 2.4 million as of March, according to an analysis of raw monthly government data by real-estate marketplace Trulia. That is down slightly from its peak of 2.6 million in 2011, but up 100,000 from the year prior. And 18- to 34-year-olds account for more than half of the missing households, according to the data. “Household formation is the most important indicator of the housing recovery that isn’t making great strides,” says Trulia chief economist Jed Kolko, who did the analysis.

Before the Great Recession, about 1.1 million new households were added annually in the U.S., Kolko says. However, from the first quarter of 2008 to the first quarter of 2011, only 450,000 new households per year were created. That, he says, contributed to lower demand for homes, and annual construction starts dropped during this period from a norm of 1.4 million to below 600,000. The 18- to 34-year-olds are a key age group for housing demand, he says: “They’ll always make up a significant share of buyers, even though they’re now less likely to be buying, renting, or living on their own than they were before the recession.”

While plenty of young people can’t currently afford a home of their own, many of those who can aren’t buying either. They watched the housing market collapse, experts say, and they’re not keen to repeat the mistakes of the past. “They’re spooked,” says Nick Scheumann, a financial adviser at Hefty Wealth Partners in Auburn, Ind. “They don’t see housing as good an investment as it was 30 years ago. It was a scary ride over the last four or five years in real estate.” Indeed, around 78% of young adults say they’re satisfied living at home, a 2012 Pew Research survey found, while 77% feel upbeat about their future finances. Some 22.6 million adults ages 18 to 34 lived at home in 2012, up 18% from a decade earlier, according to U.S. Census figures.

This may have an upside in the longer term as investors brace for this generation of Americans to take the leap, says Darren Blomquist, vice president of RealtyTrac, a company that supplies real estate data. Institutional investor purchases of single-family homes in the second quarter of this year have risen 16% year-over-year, according to RealtyTrac. “They are anticipating a surge in rental demand as these missing households move out from wherever they are living and start renting,” he says. The downside of renewed investor interest in real estate, he says: It makes it harder for prospective owner-occupants to buy a home, at least in the short-term.

The most obvious reason for failure to launch, of course, is money. Some 84% of young people are delaying major life decisions due to the poor economy, including 38% who are delaying buying their own homes, according to a recent survey by Generation Opportunity, a nonprofit think-tank based in Arlington, Va. “Youth unemployment and the skittish housing market are symptoms of the same disease,” says Evan Feinberg, president of Generation Opportunity. “Now we’re starting to see how my generation’s failure to launch has far-reaching implications for the country as a whole.”

Employment is critical for household formation, Kolko says, making it feasible for young adults to buy or rent their own place. Some 44% of 18- to 34-year-olds without jobs live with their parents, compared with just 25% of those who are employed, he says. And since most children won’t live with their parents forever, these young adults represent significant pent-up demand for housing. The unemployment rate has declined significantly — down to 6.5% in June 2013 from the October 2009 peak of 10% — but more young adults have still dropped out of the labor force. The effective unemployment rate for 18- to 29-year-olds, according to calculations by Generation Opportunity based on government data, including those who have given up looking for work, is 16.1%.

Source: MarketWatch

Speak Your Mind


Facebook Auto Publish Powered By :