Monday, November 23, 2015

Kolko: "Why Millennials Still Live With Their Parents"

by Bill McBride on 11/23/2015 04:52:00 PM

Some excellent research from Jed Kolko: Why Millennials Still Live With Their Parents

This morning the Census reported that more young adults are living with their parents in 2015 than during the recession. Despite widespread expectations (including my own) that young people would move out as the job market recovered, they are not. The share of 18-34 year-olds living with parents was 31.5% in 2015, up from 31.4% in 2014. (These Census data are from March of each year. See note at end of post on data and methods.) ...

After dropping a bit from the late 1990s to the early 2000s, the share of 18-34 year-olds living in their parents’ home rose steadily from 2005 to 2012 and has remained near this post-recession high even as the economy has recovered and unemployment for young adults has dropped sharply.
Kolko digs through the data and concludes:
So that’s the punchline: the increase in young adults living with parents over the past twenty years can be explained entirely by demographic changes. The increase since 2005 is not an aberration; once demographics are taken into account, the aberration is the bubble years of the mid-2000s, when an unusually low share of young adults was living with parents.

Adjusting for demographics doesn’t make the recent increase in young adults living with parents — or the implications for today’s housing market — any less “real.” The increased share of young adults living with parents means that household formation is being driven not by millennials but by baby boomers, and helps explain the low share of first-time home-buyers.

But adjusting for demographics does change what we should expect from the future. Because the demographics-adjusted share of young adults living with parents today is similar to pre-bubble levels, long-term demographic shifts may simply have pushed up the share of young adults living with parents to a new normal. Unless demographic trends reverse, the share of young adults living with parents is unlikely to fall much. Today’s millennials will leave their parents’ homes as they age — they’re not going to live there forever. But it won’t be the sudden unleashing of pent-up demand we might have expected if the increase of living with parents were only about the housing bust and recession and not about longer-term demographic shifts.
Very interesting.