‘Missing Households’ Plague Housing Recovery
High unemployment among young adults is prompting a big loss in household formation that is critical for long-term housing demand, according to housing experts.
Of 25 to 34 year olds, about 75 percent were employed in September; that’s about the same as year-ago levels and near the levels during the recession, The Wall Street Journal reports.
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.
As young adults put off home ownership, the number of first-time home buyers continues to be constrained. The National Association of REALTORS® reported Monday that first-time home buyers accounted for 28 percent of home purchases in September -- down from 32 percent in September 2012.
But when young adults do get off the sidelines, it could prove a big boost to home sales.
“Assuming consistent population to household ratios and home ownership ratios, the 1.8 million individuals currently living at home would translate into an additional 590,000 households and roughly 200,000 additional home owners -- roughly a boost of about 4 percent to the projected level of sales in 2013,” according to NAR’s Economists’ Outlook blog.
Source: “Did You Know: Pent Up Demand Among Young Adults Could Boost Home Sales by 200,000,” NAR Economists’ Outlook (Oct. 1, 2013) and “Employment Shows ‘Missing Households’ Still Weigh on Housing,” The Wall Street Journal (Oct. 22, 2013)
Fannie Mae economists predict that existing-home sales will rise by 10.5 percent this year, and by 6.2 percent in 2014. The economists made even bolder projections for new single-family home sales -- growing 15.1 percent this year and 44.1 percent in 2014.
"We expect home prices to firm further amid a durable housing recovery, continuing to boost household net worth, gradually diminishing the population of underwater borrowers, and reducing incentive for strategic defaults," according to Fannie Mae’s report.
Fannie Mae projects that mortgage rates will stay low by historical averages this year, but the 30-year fixed-rate mortgage will rise from an average of 3.5 percent during the first quarter to an average of 4 percent during the final three months of 2013. During the fourth quarter of 2014, mortgage rates are projected to tick up to a 4.5 percent average.
Mortgage applications for purchases are projected to increase by 16.8 percent this year and by 17.1 percent in 2014. However, a decline in applications for refinancings will likely cause mortgage originations to be down 14.5 percent this year and by 31.4 percent in 2014, Fannie economists predict.
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