In surveys taken ten years ago, Millennials used to say that they would never want to live in the suburbs, and they initially showed little interest in getting married and starting families. Following the housing crash, millions of them moved in with their parents, further slowing household formations.
Generation Y used to be a small part of the housing market, but now the Millennials account for more than one-third of all home purchases. Data from the National Association of Realtors shows that “older Millennials,” those born between 1980 and 1989, by themselves account for 26% of all home purchases. The older Millennials, now in their thirties, have started having children and are showing an increasing desire to own a home. And sometimes, those homes are in (shudder) the suburbs!
The transition of this generation, 80 million strong, out of their parents’ basements and into family life and home ownership is a major factor driving overall demand for new homes nationwide.
Growth in the number of households had been as low as 534,000 back in 2009, during the recession, but now it is again well over 1 million. The various sources of data on household formations show that we are now up to somewhere between 1.2 million and 1.5 million per year.
A new study by the Harvard Joint Center for Housing studies notes that the rate of household formation is now finally rising in line with population growth, with annual gains of nearly 200,000 on average since 2015. Up until recently, the rate of household growth has been running at half the rate one would have expected based upon the rate of population growth.
Twice as many people age 25-34, and almost twice the percentage of the population, lived with their parents or grandparents in 2017 than in the year 2000. The study follows this statistic with the observation that whenever generations have been slow to form households, they generally have “caught up” by age 40, starting to behave, by that age milestone, much the way the previous generations did. This appears to be happening now, as Millennials are starting to have babies and move to houses in the suburbs, to the extent that their finances allow it.
Incomes are finally starting to increase nicely for this generation. The Harvard study, drawing upon the Current Population Survey, observes that median per-capita income across the entire population rose 2.9% in real terms in 2016-2017, but the 25-34 age group saw an 11.3% increase. Even if a young household has enough income to buy a home, however, coming up with enough savings for a down payment can often be a challenge.
Gen Y is the largest generation in U.S. history, and for those of us old enough to remember how the Baby Boomers transformed the housing market, it is easy to imagine that this generation, the Millennials, will do the same.
Cover photo courtesy of Getty Images