WHY MASSIVE N. of YOUNG ADULTS
LIVING AT HOME WITH PARENTS
Millennials are living at home for the following reasons:
-Heavy levels of student debt
-Lower wages
-Inability to afford current home prices and in many markets, current
rents
INTRODUCTION by Tyler
Durden on 12/14/2014
The Federal Reserve conducted a study on Millennials and
tried to ascertain why so many of them are living at home. Is it too much
student debt? Lower incomes? Or is it that home prices are simply
unaffordable? The study finds that all of these factors have a big impact
on why many Millennials are living at home and why the first time home buyer
market is performing so badly.
Via Dr. Housing Bubble blog, http://www.zerohedge.com/news/2014-12-14/why-milennials-are-stuck-living-home-parents
The Federal Reserve conducted a study on Millennials and
tried to ascertain why so many of them are living at home. Is it too much
student debt? Lower incomes? Or is it that home prices are simply
unaffordable? The study finds that all of these factors have a big impact
on why many Millennials are living at home and why the first time home buyer
market is performing so badly. It also gives us insight into the shifting
building demand of new construction. Many builders are focusing their energies
on multi-unit structures to cater to an audience that will look for rentals or
lower priced condos. There is a heavy
renting trend undertaking this country. We are seeing a record numbers of
young people living at home with mom and dad heading directly back into their
childhood rooms to rock out the NES and attempting to pass Super Mario Brothers
once again. There are major implications for housing because of this new
structural change. First time home buying is down dramatically. Construction is
catering to a lower income cohort. Let us look at what the Fed found in their
report.
The massive number of young
adults living at home
One of the interesting findings
is that the trend of young adults living at home has continued on an upward
slope going all the way back to 1999. Even the toxic mortgage days of Housing
Bubble 1.0 didn’t really shift this figure by much. But the homeownership rate
increased which means that the push came from older cohorts or young buyers
that had the misfortune of buying near the top (and of course many were burned
in epic fashion).
So let us look at the findings:
Nearly half of those 25 years of age are living at home
with parents. The rate is up to 30 percent for those 30 years of age. These
are dramatic increases from 1999. There has been paltry data on the makeup of
housing composition because some were saying that many were shacking up with
roommates. That does not appear to be the case:
If you were placing a bet, you would be in a good
position putting your money on those 25 years of age living at home with
parents. The first time home buyer market continues to perform
pathetically. Of course, with investors pulling back we now have the FHFA
trying to push for 3 percent down payment loans to get the juices flowing
again. We are already at 5 percent down payments so this move to 3 percent will
likely offer minimal help for younger Americans.
One of the better graphs from the Fed report is the
combination of all these factors into one spot:
That is Figure 7 skipped (too big)
The homeownership rate of the 30 year old cohort has
tanked starting in 2007 with the market implosion. That is very clearly
illustrated by the green line above. Why? These were the folks buying with
toxic mortgages and timed the market very poorly (or simply had bad luck). The
rate of those young adults living at home has gone up unabated since 1999. Of
course the increase in home prices has been driven
by investors and this will simply make it harder on a cohort with lower
incomes and much higher levels of student debt.
It is safe to say that many more young Americans will
be renting
deep into their adulthood. It is also safe to say given the current cost of
college that many more young Americans will be coming back home to live with
mom and dad. The Fed’s findings are simply reinforcing this trend.
Given the boom and bust nature of housing, we already see
that the rate of price increases is slowing down very quickly:
The pattern seems to be clear. Prices ramp up. The economy
hits a hiccup. And prices come trending lower. This even happened in the 2010
to 2012 period. Look at where we are at right now. And the recent run up in
2013 was largely driven by a fickle group in investors.
Millennials are living at home for the following reasons:
-Heavy levels of student debt
-Lower wages
-Inability to afford current home prices and in many markets, current
rents
So how this sets up for a pent up demand for expensive
homes or nicely painted
crap shacks is really beyond the data.
The demand will be from older Friskie eating
households, investors, and foreign buyers.
* * *
It was interesting to see the number of EB-5 visas being pumped out largely to those from China:
“(WSJ)
To finance the concrete-steel platform, Related tapped a little-known and at
times controversial federal visa program known as EB-5, which offers green
cards to foreign families who invest at least $500,000 in U.S. projects that
create at least 10 jobs per investor.”
It doesn’t even have to be 10 jobs necessarily but the
hours have to work-out to the equivalent of 10 jobs. I’ve heard of people buying
places like yogurt stores or fast food chains. Not exactly 10 great paying jobs
but enough to keep young adults living at home with mom and dad. Since real
estate volume is low margin in some markets, even having a few hundred buyers
in one area can shift prices dramatically:
“(WSJ) These investors aren’t coming for the investment,” said Yi Song, a New York lawyer who works with Chinese clients. “They are coming here for their children to obtain a better education and to get residence as an insurance policy.”
The EB-5 program was virtually non-existent in terms
of volume even just a few years ago. That is no longer the case.
But again, the demand isn’t coming from younger Americans
that are suddenly making so much money that they are buying real estate. Short
of better paying jobs, the first time buyer market is going to have a tough
time.
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