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Millennial Household Formations Missing in the Housing Market

slow-growthThe generation known to do life-changing events, like establishing their own household, are opting to live with their parents or parents-in-law more than they ever have before.

Two million households headed by 25 to 34-year olds are missing from today's housing market. A report from the National Association of Home Builders (NAHB) noted that if headship rates were at 2000 levels, these missing millennials could have been "active players" in the market.

NAHB said that "a rising number of young adults choose to stay with their parents or parents-in-law."

As of 2014, more than 20 percent of young adults ages 25 to 34, or 8.8 million, live in homes of their parents or parents-in-law, up from just 12 percent in 2000, or 4.6 million. According to the report, when the youngest baby booomers occupied the 25 to 34-year old bracket in 1990, 12.2 percent, or 5.3 million lived with their parents.

The formation of new households in the U.S. were disappointing to say the least for the final quarter of 2015, but Capital Economics says that this news is no reason to panic.

The U.S. Census Bureau recently reported in their Housing Vacancies and Homeownership survey (HVS) that household formation rose by 462,000 year-over-year for the fourth quarter of 2015. This was the smallest increase on record since the second quarter of 2010. The Capital Economics analysis says that the low fourth quarter rate of household formation "reflects base effects" and household estimates are "very volatile."

"The sharp slowdown in household formation in the final quarter of 2015 reflected base effects, and is not a cause for concern," the report stated. "In any event, even though a lack of available homes will act as a constraint on the creation of households, underlying demand from Americans wishing to set up on their own will hold up. That will give homebuilders the confidence to increase production, as well as put upwards pressure on house prices."

The report found that households numbers should have come in higher due to the share of 18 to 34 year olds living with their parents—31.5 percent in 2015 and 27.5 percent before the financial crisis.

"Many of those will be itching to move out of the parental home and form their own households," Capital Economics said. "The improvement in the labor market will help some of them to do so–after all it is hard to strike out on your own if you do not have a job. And banks are gradually loosening their lending criteria, giving more Americans the opportunity to buy a home."

 

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