How Millennials Are Impacting the Housing Market

Millennials Could Be at Fault for Hindering Home Growth Values

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In keeping with a tradition that pre-dates the ancient Greeks, we middle-age folk love to mock and wring our hands about the generation behind ours. The current targets of that venerable disparagement are the Millenials, those currently age 20 to 36. Often portrayed as pampered, entitled and feckless, the Millennials can now be blamed for nothing less than retarding the growth of home values.

More than 32 percent of Americans age 18-34 currently live at home with their parents.

There are about 75 million Millennials, which means there are 25 million young adults living in the nation’s spare bedrooms, basements, and bonus rooms. This reality can help us understand where housing prices are headed.

The housing market is heavily driven by household formation. The more households we create, the more upward pressure is exerted on housing prices. So, the sooner Brittany or Justin 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, they are generally mortified by living in mom and dad’s basement, and really do want their own place.

The outlook for housing in 2017 is generally strong. The past several years have seen a dramatically improving housing market. The median price for both existing and new homes is above its pre-recession peak. Despite ongoing expansion of the home building industry since the great recession, the supply of homes continues to shrink.

Mortgage rates have inched upwards but are still near their recent historic lows. The outlook for the US economy, based on my CHIME model, is very promising.

CHIME is:

  • Consumer Confidence: It’s 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 percent in the summer of 2016. A spike in the US 10-Year Treasury from 1.4 to 2.5 percent has pushed US mortgage rates into the mid-4’s, a very reasonable rate that keeps homes very affordable.
  • Manufacturing: showing expansion at 53.2 percent in Nov 2016.
  • Employment: Unemployment is near a multiyear low of 4.8 percent.

Now. If the housing industry can just tap the home-buying potential of the Millennials it could significantly goose this already solid sector. According to the most recent census data “living in parents’ home” is the most common living arrangement among young adults. A stunning 32.1 percent of Americans aged 18-34 live with their folks. That edged out “married or cohabitating in own house,” which describes 31.6 percent of that demographic group. Another 22 percent lives in “other” situations, which includes living with other relatives.

Young men are least likely to leave the nest without being booted. Over one-third of men 18-34 live with their parents as compared to 29 percent of women in that demographic.

Compare today’s figures to the 1960s when just 20 percent of young adults lived with their parents and a whopping 62 percent were married or cohabitating in their own pad.

One explanation for this phenomenon 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 percent.

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 get married than earlier 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’ were married during that same period of life.

But Millennials at least want to buy a home of their own, if they can find one that’s affordable and suits their lifestyle. In a recent survey by Apartment List, 79 percent of Millennials who are currently renting said they want to buy a home.

The biggest obstacle is affordability with 77 percent saying that’s their biggest barrier to ownership. Only 40 percent said they are waiting to settle down or get married before buying a home.

Millennials who have the money to buy a home can be picky. Generally speaking, they are looking for walkable neighborhoods with nearby shopping and access to public transit. Many turn up their noses at the oversized homes of their parents’ generation. They want affordability, flexibility and a sense of style in their houses. Their preferences are currently mostly met in cities, as opposed to the suburbs.

Still, we could be on the front edge of a housing boom powered by Millennials. We love to make fun of this generation, but it’s full of hardworking, accomplished people. If the economy continues its steady upward climb, and we build more homes that attract first-time buyers, the Millennials will move out of the basement and into the fore of the housing market. It’s their time to live this integral part of the American Dream.