Millennials Finally Flee Parents’ Homes

The pace of young adults leaving their parents’ homes is accelerating significantly, Fannie Mae’s Economic and Strategic Research Group notes in a new analysis.

Young adults aged 24 to 25 in 2013 and 26 to 27 in 2015 residing with their parents dropped by 7.6 percentage points. On the other hand, those who passed through that same age range between 2010 and 2012 saw a decline of only 5.4 percentage points, researchers note.

Millennials in their 20s or early 30s saw their income, adjusted for inflation, grow by at least 23 percent between 2013 and 2015 when compared to 2010 and 2012. Further, their incomes are at least 81 percent greater than between 2008 and 2010.

Also, millennials between 2013 and 2015 were getting married at a markedly faster rate than their predecessors did in that same age range during the recession and the recovery thereafter, Fannie Mae’s report notes.

Source: “Starting to Launch: Millennials Are Leaving Mom and Dad’s Basement,” Fannie Mae’s Housing Insights (2017)

First Comes Income Gains, Then Comes Housing?

If income growth is key for greater household formation, housing analysts say some recent progress on the salary front may soon unleash pent-up housing demand among younger adults.

“For individuals in the key household formation period of age 25 to 34, a 0.87 percent decline in median income in 2012 reversed to a 1.1 percent increase in 2013,” notes economist Robert Dietz on the National Association of Home Builders’ blog. “If these improvements continue, it will be good news for housing demand going forward.”

Indeed, in recent commentary, a Fannie Mae economist notes an improving financial picture for young adults that could help jump-start household formations.

“The Great Recession and housing bust hit young adults hard,” writes Patrick Simmons, director of strategic planning for the economic research group at Fannie Mae. “The unemployment rate for 25- to 34-year-olds more than doubled between 2007 and 2010, and real median household income for this group fell by nearly 10 percent during the downturn. As economic conditions deteriorated, young-adult household formation and home ownership fell sharply. In recent years, however, young Americans’ economic circumstances have begun to brighten, with the unemployment rate for 25- to 34-year-olds dropping and their income stabilizing.”

“The continued slide in household formation and home ownership among young adults suggests that more robust labor market improvements, among other factors, are needed for young Americans to get a stronger foothold in the housing market,” Simmons says. “The large decline in home owner affordability problems among young adults indicates that substantial housing market changes in the wake of the housing bust have created a generation of young home owners who have housing costs that are much better aligned with incomes.”

Source: “Income Growth Key for Housing,” National Association of Home Builders’ Eye on Housing (Sept. 30, 2014) and “Young-Adult Housing Demand Continues to Slide, But Young Home Owners Experienced Vastly Improved Affordability,” Fannie Mae (Sept. 30, 2014)

 

 

Analysts Still Bank On 7% Home Appreciation

Despite a weak quarter in existing-home and new-home sales, Wall Street analysts say they still expect home prices to increase by 7 percent this year.

“We continue to expect home-price appreciation to moderate from the torrid pace of mid-2012 to 2013, supported by improving employment and growth prospects,” according to analysts from Morgan Stanley. Analysts from Barclays echoed that, saying they are keeping their projection for home prices unchanged at 7 percent.

Barclays analysts are most upbeat about home-price appreciation in four “sand states”: Arizona (projection of 8.2%), California (9.4%), Florida (8.3%), and Nevada (11%).

Morgan Stanley acknowledged the sluggish spring start. “In our view, the rationale for the weakness comes from a combination of three factors: severe winter weather; a transition away from investors reliant on distressed and cash purchases to mortgage credit-dependent buyers; and affordability challenges for first-time home buyers,” says Morgan Stanley’s analysts, adding that nearly 20 percent of home owners remain underwater on their mortgage, which is also preventing many from moving.

Nevertheless, Morgan Stanley analysts say they’re still upbeat about the prospects for an ongoing housing recovery.

Source: “Wall Street Home Price Appreciation Still Expected to Hit 7%,” HousingWire (April 28, 2014)