NAR: ‘Missing Households’ Cost 200,000 Home Sales

Econintersect:  The National Association of Realtors (NAR) says that young adults still living in their parents’ homes constitute a pent-up demand for housing that could boost both rental markets and home sales.  The numbers apply to adults up to age 35, obviously overlapping the first time renter and first time home buyer age demographic.

From Realtor Mag:

Young adults who are unemployed are mostly opting to live with their parents and aren’t renting or owning their own place. Indeed, the number of adults under the age of 35 who are living at home is at the highest level since 1981. More than 30 percent of those aged 18 to 34 are living with their parents. The typical average is 28 percent.

The employment rate for 25-34 year olds has remained little changed over the past four years, at about 75%, according to Realter Mag with source credit to The Wall Street Journal.  When this improves the NAR estimates that it could be the source of a big boost to home sales, perhaps by as many as 200,000 units.  This would amount to 4% added to home sales in 2013 if it were all to occur this year.  Of course, such a shift is likely to be extended over time, possibly years.

Actually, home ownership under age 35 only about 2% below the 30-year average if the housing bubble years from 2002 to 2009 are removed.  The latest number in the following graph is just below 37%.  That is far below the peak near 43% in the housing bubble but much closer to the average around 39% for the years omitting the bubble.  The current level is only slightly below that of 1993 and 1994.

The current home ownership situation for young adults is only marginally at an historic low.

Added Input from Econintersect

But that is not to say that there is not a problem.  Credit available to this group will be constrained not only by diminished employment opportunities and remuneration, but also by the overhang of student loan debt, which now totals well over $1 trillion.  The following graph by Doug Short plots the government share of student loan debt which is less than half of the total.

The existence of this massive debt load can be viewed as a repository of used credit that might otherwise be available for mortgage borrowing.  What portion of this total removes credit otherwise available for mortgages?  It is just a guess, but let’s say it is $300 billion (less than 30%).  Also assume that a first time home buyer would borrow on average $150,000 and quick arithmetic gives a total of 2,000,000 possible additional homes sales ($300 billion / $150,000) that are inhibited by college loan debt.

Such a credit burden on the population removes a much bigger number of home buyers from the market than the “pent up demand” envisioned by the NAR.

John Lounsbury

Sources:

• ‘Missing Households’ Plague Housing Recovery (Daily Real Estate News, Realtor Mag, 23 October 2013)

• Did You Know: Pent Up Demand Among Young Adults Could Boost Home Sales by 200,000 (Daniele Hale, NAR Economists’ Outlook Blog, 23 October 2013)

• Student Debt – Update (Doug Short, GEI Analysis, 20 July 2013)