This was supposed to be the year when millennials threw off their chains of dependence and flocked to the housing market. Instead, more millennials now are living with their families than at the height of the Great Recession, according to a new study from the Pew Research Center.
It’s not that millennials don’t want to be independent. Many simply cannot afford to live on their own — in part because the cost of housing is so high.
Overall, millennials as a group are better off financially than they were a few years ago. “Unemployment is down, full-time work is up and wages have modestly rebounded,” states the Pew report.
Nonetheless, as of the first four months of this year, only 67 percent of millennials were living independently (compared to 69 percent in 2010), and the share of young adults living in their parents’ house increased from 24 percent to 26 percent. In raw numbers, 20.4 million young adults (ages 18-34) in the U.S. now live at home — an increase of 400,000 in the first quarter of 2015.
Some of this increase is due to the aging of the millennial generation, as once-younger millennials enter the young adult demographic. Pew notes that the age 18 to 34 population has grown by nearly 3 million since 2007, and many of these individuals are younger than 21. Even so, among those ages 25 to 34, with a high school education or less, the number living independently has decreased by 2 percent in the past five years.
Many factors are contributing to this trend of delaying independence. The most often cited factor is student loan debt, which makes it difficult for higher-earning, college-educated millennials to qualify for a home mortgage. Other debt — including car payments and credit cards — plus little or no savings compound the problem.
In addition, millennials are putting off marriage and household formation, and so are under less pressure to have a place of their own.
The housing market has pinned its hopes on the millennials to boost first-home buyer demand. That in turn would incentivize current homeowners to sell and trade up to new or larger and/or more expensive homes. This would increase purchases of home products and services, which would benefit the economy as a whole.
In many parts of the country, however, millennials are being priced out of the market. As the number of home sales rose this spring, so did prices. Bidding wars, with bidders offering to pay cash and other incentives, have made it nearly impossible for average young adult to compete.
The National Association of Realtors reports that after climbing 2 percent in May, the percentage of first-time homebuyers fell back 2 percent in June, due to “declining affordability.” Market forces in fact have backfired, with homeowners reluctant to sell for fear they will not be able to find an affordable next home by the time they go to settlement on their current home.
Further complicating the situation is a steep rise in rents throughout most of the country. An article in Realtor, the magazine of the National Association of Realtors, states that recent NAR research shows “the gap between rental costs and income is widening to unsustainable levels in many parts of the country, and rents throughout the country are showing no sign of slowing down.”
Renting is often a first step toward independence and a future home purchase. Ironically, though, the lack of affordable homes for purchase has raised demand for rental properties, and that in turn has driven up rents to a point where many young adults cannot afford to live on their own. Hence, they remain dependent, living with their parents or other family members.
Several surveys within the past year have indicated that millennials would like to purchase a home and plan to do so “in the near future.” With current market conditions, that future is looking further and further off.
Unless something is done to make housing more affordable for more young adults, we may have to wait until 2018 or later to celebrate the year of the millennial homebuyer.
About the Author
Michael J. Berens is a freelance researcher and writer with more than 30 years of experience in association communication and management. He can be reached at firstname.lastname@example.org.
This article was provide by Multibriefs.