Heard a neighbor complain recently that their 25-year-old has moved back home and is crashing on their couch? That story isn’t an uncommon one. Nearly two million 18-34 year-olds were living with their parents between 2006 and 2010, according to the “State of the Nation’s Housing” report released in June by Harvard University.
The percentage of 18-34 year-olds living with their parents between 2006 and 2010 increased 2.7 percent, bringing the total number to 1.95 million. That’s the largest decline of household formation numbers for any age group during that time. But Eric Belsky, managing director of the Joint Center for Housing Studies, remains optimistic that this demographic will start forming households in the near term—and start buying homes in the long term.
“Surveys consistently find that the overwhelming majority of young adults plan to own a home in the future, but many would-be buyers have stayed on the sidelines waiting for the job outlook to improve and house prices to stop falling,” Belsky said. “But as markets tighten, these fence-sitters may begin to take advantage of today’s lower home prices and unusually low mortgage rates. With rents up, home prices sharply down, and mortgage interest rates at record lows, monthly mortgage costs relative to monthly rents haven’t been this favorable since the early 1970s.”
Declining immigration numbers also contributed to a drop in household growth from 2007 to 2011. But echo boomers, the name for the next generation of potential home buyers, are expected to be mostly foreign born. The report estimates that between 2010 and 2020, seven out of 10 new households will be minority, even if immigration fails to return to pre-recession levels.
In 2011, fewer than 700,000 households were added, and that’s well below the 1.2 million or more annual trend expected under more normal economic conditions. So, the key for attracting new buyers—and renters—of any age or race will be job growth.
“What the housing sector needs is a sustained increase in jobs to bring household growth back to its long-term pace and spur demand,” said Chris Herbert, Director of Research at the Joint Center for Housing Studies. “The country has seen new household formations fall well below expected long-run rates due to a falloff in young adults being able to move out on their own and a slowdown in net immigration.”