Young people want to own a home just as much as their parents did. Unfortunately, a lot of them have to get out of their parents’ house first.
During the economic recovery, the number of shared households — those with an adult that does not own the home or is not the significant other of the homeowner — has taken off to incredibly high levels. Currently, about 13% of Americans aged 21-34 live as the other adult in a shared household, according to a survey done by UBS economists.
These shared households have put a drag on household formation, which is an important economic driver leading new house construction and growth in durable goods spending. From the late 1980s until the mid 2000s, annual household formation growth fluctuated between approximately 0.8% and 1.8%. Since that time, however, it has been hanging between approximately 0.4% and 0.8% according to a chart from UBS.
The UBS economists did have some good news: 54% of people living at home plan to move out in the next year, up 10% from November of last year. Additionally, 67% of people who were not expecting to move out within the next year said they were eventually planning on it, up 12% from November. Both numbers remained close to levels in the February survey.
The positive outlook is seems realizable since it has gone two quarters in a row at these higher levels and is not due to seasonal housing differences, according to the report:
“That is because there also was an increase in the fraction of respondents who were not planning to move in the next 12 months but expressed plans to eventually move. Since their plans were for more than a year ahead, they are less likely to reflect potential seasonality heading into the normally seasonally strong spring home-selling period.”
The puzzling piece of the report is that the financials of those living at home don’t seem to support the expectations to move. The UBS report shows that 69% of those living at home say they have incomes that do not cover their current expenses or barely do. So there is a 24% gap between those that say they have income greater than their expenses and those that plan to move in the next year. Additionally, only 25% of those living at home reported being employed full-time while 26% said they are unemployed and looking for jobs.
The categories are self-reported so “barely” is vague, and 31% of those living at home aren’t seeking jobs, many of them students who could have more favourable economic conditions soon. Based on the data provided, however, there seems to a gap between current situation and expectations. A logical question: how could someone that says they live paycheck to paycheck, or close to it, while in a shared household afford to add on rent or a mortgage?
The note does say that improved wage growth and the general improvement of the labour market could get people out of their parents homes faster, which would back up their optimistic thinking. This would be good news for household starts, the US economy, and parents ready to finally have the house to themselves.