Everyone says that Millennial homebuyers offer a huge opportunity for housing, but now, we can finally put a number behind it – and it’s a big one.
It’s no mystery that Millennial homebuyers have been missing in action thus far in the housing recovery, and that the massive group of buyers – by the latest count, more than 76 million – will be the final lynchpin in a sustainable housing recovery.
Those kinds of statements, though, have been more empirical than anything else, but thanks to the folks at Trulia, we now had a pretty good idea of the true potential of Millennial homebuyers, and what they represent, in terms of numbers, for housing going forward – and it’s a big number!
2.4 Million Questions
Household formations typically number 1.1 million a year, meaning, 1.1 million new households are added to the U.S. every year, normally because of population growth. With the recession, though, that number collapsed, falling all the way down to 450,000 in 2008. In the first quarter of 2012 and 2013, formations were still historically low at 521,000.
A big reason for the slow formation of houses, explained Jed Kolko, Trulia’s chief economist, was the historically high number of Millennials who lived with their parents, rather than moving out and forming their own households; thus, housing formations remained low, and the number of “missing households” (households that would have been created in a healthy economy) began to accumulate.
How many missing households are we talking? More than two million; 2.4 million, to be exact! That’s how much pent-up demand there is out there for homes, particularly among the Millennial generation still living with mom and pop.
The Kids Are Alright?
All this data leads to one central question – when will those pesky Millennials move out of their parents’ homes and create a home of their own? As Trulia’s research showed, that’s a difficult question to answer, especially with so many Millennials still living at home. More than 31 percent, in fact, still live with their parents, up from 27 percent before the recession (here’s a great graph showing the increase). And without a robust job market, Kolko said, it’s unlikely we’ll see any huge movement from Millennials in the immediate future…though when they do move, it’ll be spectacular.
“The good news is that when young adults do move out, we’ll see a surge in demand for homes, especially for rentals,” he said.
So brush up on those Millennial communication skills, because you’ll soon need them.