Housing Market Implications of Adult Children Living With Parents

Sincernthe start of the housing crisis the experts have noted the tendencyrnyoung adults to continue to live in their childhood homes. This theyrnsay is contributing to the diminished rate of household formationrnwhich is, in turn, lowering homeownership rates in the lower agerncohorts with the ultimate effect of holding back the housing andrnconstruction recoveries. </p

Evenrnwhen young adults move out of their parents’ basement, as thernsaying goes, they tend to share housing with other young adults. Therneconomists at CoreLogic have coined the name “the RenterrnGeneration” as an alternative designation for the age group morernbroadly referred to as Millennials, those born between the earlyrn1980s and early 2000s. </p

FanniernMae focused on the issue in a Commentary piece released on Tuesday,rnusing data collected through its National Housing Study (NHS) overrnthe first two quarters of 2014. Adult decision makers were askedrnquestions about their young adult children living at home, so allrnresponses are from the parents’ perspective. The analysisrnaddressed answers regarding two age groups, 18 to 22 year oldsrn(younger adult children) and 23-34 year olds (older adult children.)</p

Authorsrnof the Commentary, WhyrnAre Young Adults Living with Their Parents and When Will They MovernOut? suggestrnthat the issue of Whyrnisrndriven by arncombination of personal financial constraints, age of the adultrnchild, and parental preferences. </p

ThernNHS notes that the percentage of young adults between the ages of 18rnand 34 who are living with their parents increased from the 27rnpercent average that prevailed between 1990 and 2006 to 31 percent inrn2013. This means that some 22 million young adults, a group thatrntraditionally provides a substantial share of first-time homebuyersrnis delaying the decision to form a household. Young adults also havernbeen experiencing higher rates of unemployment and are delayingrnmarriage, other factors surrounding their lack of householdrnformation. </p

Financialrnreasons were the primary response given by parents for why theirrnadult children are still living at home. As regards the youngerrnadult children, parents by a large margin say that they are “savingrnmoney while enrolled in school.” It has also been reported in thernsurvey that the majority of this group arern”not currently employed in a paying job” or “employedrnpart-time” which impedes their ability to live on their own. </p

Arnwider range of responses was given why older adult children werernstill at home. Top responses include:</p<ul<li

“Theyrndo not have enough income to live on their own.” </p</li<li

“Theyrnare not yet married.” </p</li<li

“Theyrnare saving money while enrolled in school.” </p</li</ul

Inrnaggregate the primary reason for the older age group was financialrnconcerns even though half of that group is employed full time.rn</p

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Thernsurvey also found that most parents (68 percent) actually preferrnhaving their adult children live with them. As the chart belowrnindicates this preference was significantly lower among the parentsrnof older adult children than among parents of younger adults.</p

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Therernwas also a difference in answers regarding financial attitudes. Arnhigher share of parents of younger adult children said their recentrnpersonal financial situation had gotten better (+5 percent) or wasrnexpected to get better (+11 percent) than the responses from parentsrnwith older adult children. The parents of younger children alsornwere more frequently employed full-time, perhaps partially due to agerndifferences although reported rates of retirement in the two groupsrnwere similar. </p

Therernwere also significant differences in attitudes by adult children agerngroups in their respective parents’ attitudes about the potentialrnfor their children to move out on their own. Fifty-twornpercent of parents with older adult children expect their children tornmove out in less than 2 years, whereas parents with younger adultrnchildren were almost evenly split between less than 2 years (38rnpercent) and 2 to 5 years (34 percent). Overall the majority of thernchildren expect that they will more likely rent than buy a home whenrnthey move out of their parents’ house.</p

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FanniernMae adjusted these findings to be more comparable to the 2012rnAmericanrnCommunity Survey (ACS) which showed that 67 percent of householders</bunder the age of 34 were renting and the homeownership rate was 33rnpercent. In the NHS survey 66 percent are more likely to rent, 34rnpercent to buy. "This could imply that young adults currentlyrnliving with their parents may not have a substantial impact onrnshifting the near-term homeownership rate when they do move out ofrntheir parent's home," the commentary says. It adds that a recentrnNHS found that more than 90 percent of young renters said they arernlikely to buy a home at some point in the future.</p