Millennial Households Are Down but Not Out
Falling unemployment and rising wages are poised to stimulate household formation among younger adults.
Younger adults were hit harder by the global financial crisis than any other age group, and their circumstances have been slowest to improve. Household formation among younger adults has been correspondingly weak postcrisis and explains much of the slow pace of the housing recovery. We estimate as many as 2 million households were "postponed" among the 25-39 age group since 2006.
Recently, conditions have begun to improve for younger adults, setting the stage for stronger housing activity in the years to come. Labor markets have tightened since early 2015, catalyzing a significant and long-awaited rebound in inflation-adjusted wages for younger adults. With unemployment remarkably low, underemployed young workers are finding better job opportunities. Household formation among younger adults should accelerate, with a lag, as balance sheets are rebuilt. Rising mortgage rates are unlikely to prove an unsurmountable barrier to homeownership, nor do we see any evidence that millennials are meaningfully less inclined to own than prior generations. Meanwhile, new housing supply is changing to meet nascent millennial demand, as homebuilders’ mix shifts to affordable starter homes. We expect 2.25 million new households to be formed by those aged 25-39 through 2020, based on these conditions.