2.4 Million Missing Households Are Killing the Economy


Flickr / joejukes.

It began right after the housing crash, and peaked in the years 2010 to 2011. While dropping slightly in 2012, it rose again last year, and looks on track to stay steady throughout 2014.

I'm referring to the number of "missing households" – young adults who are not yet renting or buying their own homes – 2.4 million of which continue to be an incredible drag on the housing recovery, and, by extension, the economy.

The worst part of this scenario is that the lion's share of these households is believed to be comprised of the Millennial generation, the age group most likely to be first-time home buyers.

Where did they go?
According to Trulia, pre-crisis household formation was 1.1 million annually, which makes these numbers even scarier. From 2008 to 2010, the number of households that went missing went from just under one million to 2.6 million.

Where are they hiding? Many still live with their parents, while others rent apartments with multiple roommates. A combination of heavy college loan debt, a tough job market, and rising home and rent prices are mostly to blame.

Flickr / 401(k) 2013.

A temporary problem, or the new normal?
Some economists think that this problem will take care of itself, in time. In a 2013 Fannie Mae study, Millennials expressed a desire to own their own home, with 90% of renters voicing that opinion. Unfortunately, 42% saw home ownership being a minimum of five years away. 

Even that time frame sounds iffy, given the hurdles young people are facing. A Sterne Agee economist pointed out in mid-June that the jobs issue is huge, and that the labor participation rate of college graduates is just 75%, the lowest since government analysts began tracking this metric in 1992. With employment prospects dicey, many young people are unable to pay their student loans, never mind take out a mortgage: more than 10% of college loans are at least 90 days delinquent, compared with a 3.7% delinquency rate on mortgages. 

That's not all. Some recent data from the Federal Reserve Bank of St. Louis shows that, of all age groups, families headed by those 40 years of age and younger have suffered the most from the Great Recession. While older households have regained nearly all their wealth lost since 2007, younger families are more than 30% poorer today than they were before the financial crisis.

These numbers do not bode well for housing market participation by young people, in my opinion. The St. Louis Fed numbers bear witness to how much the young have retreated from home ownership since 2005, when that percentage was a little over 50%. In 2013, the rate had fallen to 42.2%, the biggest percentage-point drop of any age group. Sadly, it looks like the first-time home buyer won't be back for a long time – if ever.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3009319, ~/Articles/ArticleHandler.aspx, 9/20/2014 8:03:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement