Report: Tough realities for younger generations hold back housing

Younger generations are finding it tough to make progress as adults, and in turn that’s stymieing growth in housing markets, according to a new report from Freddie mac.

The report compares young adults to previous generations and measures their impact on household growth.

Unfortunately, Freddie Mac says that for younger generations, “’adulting’ is getting hard because the economic environment has been tough in recent years; wage growth has been weak and housing costs have risen rapidly.”

In addition, younger adults are also held back by higher education and healthcare costs, the report noted.

One particularly stark statistic is that today’s young adults have seen their annual expenditures rise by 36 percent compared to young adults in 2000. The average annual expenditures on health care and education have more than doubled, according to the report.

Freddie Mac says that labor market outcomes and the cost of housing are the two main factors behind the decline in household formation among younger people. From 2000 to 2016, median home prices increased by 29 percent, but young adult per capita incomes rose by just one percent in the same period. In addition, the participation rate for young adults in the workforce has seen a “substantial decline” in recent years.

Millennials are the largest generation since the baby boomers. Nearly 45 million adults aged 25 to 34 lived in the United States as of 2016, according to U.S. Census data. That is 4 million more than those aged 35 to 44.

If millennials had formed households at the same rate as young adults in 2000, they would have formed 1.6 million additional households in 2016, according to Freddie’s research.

But millennials have been slower than previous generations to reach milestones such as buying a home, getting married, and having children.

Don’t count them out yet, researchers say. Millennials and the generation after them, Generation Z, are expected to add between 19 million and 21 million net new households by 2025.

“We expect that as life progresses and today’s young adults age, they will add around 20 million households to the U.S. economy, driving housing demand over the next decade,” says Len Kiefer, Freddie Mac’s deputy chief economist. “But housing costs are a major factor holding back young adult household formations. Our research results indicate that 28 percent of the decline in young adult household formation is due to housing costs. If housing costs continue to rise, we could see about 600,000 fewer households over the next decade.”