This week's drop in existing-home sales may have been largely due to the large amount of "pent-up demand," aka kids who won’t move out of Mom and Dad’s place. Most aspects of the housing recovery are … recovering. However, household formation is undoubtedly lagging behind the rest of the recovery.
Thanks to years of below-normal household formation the number of missing households has accumulated, writes Trulia ($36.98 -0.52%) Chief Economist Jed Kolko in his latest blog post.
According to the 2013 Current Population Survey data, there are still 2.3 households out there that are just missing. This is extremely close to the peak of 2.6 million back in 2010 and 2011 — the peak of the recession. So where are these "missing households?"
Most of these missing households are youngsters who have yet to leave their parents' casa. The share of 18-34 year-olds — also known as Millennials — living with their parents increased from around 27% before the housing crisis to 31%, where it remains in 2013. Of those living with their parents, 44% of 18-34 year-olds were unemployed, while 25% held a job.
But here’s the catch. The housing recovery depends on household formation to continue recovering. The likelihood that young people live with their parents is just 8% back to normal, according to Trulia. The other recovery measures tracked by Trulia are much further along: existing home sales are 82% back to normal, the delinquency + foreclosure rate is 57% back to normal, and even construction starts are 43% back to normal. In contrast, household formation has barely begun to recover, writes Kolko.
So how can we get these kids out of their parents’ houses and into their own? Jobs will be a huge factor. However, Millennials have a lot further to go than other generations. And besides, even when the Millennials do start landing jobs again, it will take some time to accrue enough money to move out on their own. All we can do is wait, and hope that other generations can make up a portion of these “missing households” for now.