The headlines seem pretty ominous: a record number of young adults aged 18-31 are living at home with their parents. The percentage of young adults under such living arrangements has shot up from 32 to 36% from 2007 to 2012. These are the media-grabbing headlines from a study released on August 1, 2013 from the Pew Research Center conducted by Richard Fry, Senior Research Associate, called "A Record 21.6 Million In 2012: A Rising Share of Young Adults Live in Their Parents' Home." Fry was interviewed on KQED's The Forum along with other experts speaking on the topic of young adulthood.
On the surface, it seems that the recession has forced young people to retreat homeward. An increase in the percentage of young adults living at home also occurred during the last big recession in the early 1980s (Fry does not call this out and instead emphasizes how the aggregate percentages remained the same at specific snapshots: 1968, 1981, 2007). However, when the data are broken down by levels of education, age groups, and gender, the story becomes more nuanced. For example, it turns out that the most dramatic relative change since the recession has occurred with young adults aged 25-31. The percentage of these young adults living at home has not only risen but has also reached new highs. However, younger adults, those 18-24, have barely exceeded levels consistently last seen throughout the 1980s. Moreover, the data show that the slow rise for 25-31-year-olds is likely consistent with a slow shift that perhaps began in the early 1980s. So, I think the title of the graph below provided by Fry tells only half the story:
Percentage of Young Adults Living At Home Broken Down By Major Age Groups
Moreover, the rate of household formation dropped just two percentage points from 2007 to 2012, from 35 to 33%. Looking over the span of time since 1968, an observer should feel hard-pressed to identify any trend. In fact, it is probably no accident that the last time household formation dropped from 35% to 33% was during the early 1980s, another time of severe economic stress. Although we really will not know until more data get collected in the coming years, Fry never even addresses this apparent similarity in patterns. Again, the related chart headline provided by Fry tells only half the story.
Household Formation Amongst 18-31-Year-Olds
The 3.1 million increase since 2007 in 18-31-year-olds who have chosen to live at home seems to dwarf the approximate 1.2 million "missing households" recently blamed on 18-34-year-olds abstaining from home ownership because of the recession's fallout. Regardless, the above graph suggests to me that we should expect aggregate household formation to improve along with the economy. Non-economic factors that are driving the decision to stay with Mom and/or Dad are not likely to impact the current housing recovery until, and IF, these demographic changes become much more dramatic than what has been seen since 2007.
The most dramatic demographic change amongst young people is the change in marriage patterns: "Since 1968, age at first marriage has increased by nearly six years for both men and women." This has likely caused the sharp and persistent drop in "married head of household/spouse of head" and the parallel persistent rise in "other independent" arrangements and "living with kin."
Overall changes in living patterns for young adults
These dramatic changes happened even as the housing bubble grew, bringing with it an increase in homeownership rates. Thus, there is every reason to think that home ownership rates can stabilize and even increase again even as younger people further delay marriage. In other words, a new equilibrium can be obtained that simply features a higher average age for the head of household. Unless young people forgo marriage altogether, the ultimate destination for children is to leave home at some point. As of 2012, only 3% of married couples aged 18-31 lived with a parent of the spouse.
Finally, the breakdown by age and gender demonstrates that males aged 18-24 have experienced the most dramatic relative change of any group. In just the years from 2007 to 2012, the percentage of these young men choosing to say at home went from a new low (since 1968) to the highs seen in the early 1980s.
Age and Gender Differences in the Choice to Live At Home
This change for men 18-24 is made all the more dramatic by the change in college enrollment. In the 1970s, the percentage of these men enrolling in college dropped from about 30% to close to 25%. This percentage has recovered ever since and now sits at 40%. Women in this age group have experienced steady improvement in this period from 20 to 45%. These changes are important because the U.S. Census Bureau that serves as the basis for all these data counts students living in dormitories as living with their parents. An increase in college enrollment will naturally increase the number of younger people living at home, and the long-term trends clearly tell us this is not something new since 2007. Fry states in his interview that he was unable to distinguish between students living in dormitories and those actually living with their parents. In other words, the increase in younger people living at home is likely over-stated somewhat by this anomaly in the data collection (they should not be added to the numbers for household formation either!). Hopefully the good news of a more educated demographic of younger people is that this trend will soon translate into a much improved economy…which should then lead to a lot of pent-up demand for housing in coming years. (Young adults who graduated from college are much less likely to live at home than those who did not, and the share of 25 to 31-year-old college grads living at home only increased from 11 to 12% from 2007 to 2012, a change Fry called "statistically insignificant.")
Fry notes that:
"In nearly every subgroup, more young adults are living at home in 2012 compared with 2007. This indicates that even if the composition of young adults had remained unchanged in terms of college enrollment, employment and marital status, more young adults would be living at home in 2012 than before the recession."
I am suggesting that an even more nuanced approach is required for these data. A closer look at the overall trends suggests that the recent changes are not quite as dramatic as they seem at first. I am even less convinced that the existing scale and scope of the demographic shifts will impede the progress of the nascent housing recovery. The standard fundamentals of employment and income will remain far more important. (In my last piece on these changing demographics, I argued that these demographic shifts could provide enough pent-up demand just in time to stave off the demographic hype regarding "Selling Seniors" by 2020).
Be careful out there!