Most Young Adults Living With Parents Will Become Renters, Not Homebuyers
An unprecedented number of young adults are living with their parents, and when they eventually move out, two-thirds of them will become renters, not homeowners, according to recent Fannie Mae research.
The percent of young adults age 18-34 living with their parents rose from an average of 27 percent in 1990 and 2006 to 31 percent in 2013, according to the U.S. Census Bureau. That adds up to 22 million people who currently aren’t buying or renting on their own.
Of those, about two-thirds, or 66 percent, are expected to become renters when they move out, compared to 34 percent who are likely to buy homes, according to Fannie Mae research
The reasons for more young adults staying with the folks is multifold, but is largely financially based:
- They lack a job or enough money to live on their own.
- They are saving funds while going to school.
- They are single.
More than half of the parents (52 percent) with older adult children at home (those between 23 and 34 years old) said they expect their children to move out in less than two years.
That compares to 38 percent of parents who expect their younger adult children (those 18-22 years old) to move out within two years. The older group was more likely to be employed full-time while the younger group was more likely to be saving money while going to college.
Because young adults have traditionally represented a substantial percentage of first-time homebuyers, the research raises questions about what this means for the housing market.
For real estate investors in single-family rentals, duplexes and apartments, it suggests continued demand among this demographic even though both segments of young adults in the Fannie Mae research expressed interest in eventually becoming homeowners.
A full 90 percent of young adults in a May 2014 National Housing Survey by Fannie Mae said they still aspire to eventually become homeowners, although down payments, credit scores and student loan debt are all impediments in the near term.
HOW TO MAKE RENTING ATTRACTIVE
About three quarters of younger renters and owners say a lease-to-own arrangement would make renting more desirable, according to the National Housing Survey.
Renters also may view renting more favorably if the rental deal allows them to achieve benefits typically associated with homeownership, such as more control over their living space, and renting in their preferred school district, according to the National Housing Survey.
Investors of single-family homes or duplexes might determine that it makes sense to allow their renters to personalize their space by allowing the renter to paint rooms or plant flowers, for example — things usually prohibited in large, multifamily developments. Homes in coveted school districts might be able to command higher rents.
Although home price increases have moderated, prices in May were up more than 9 percent over year-ago prices, according to the latest S&P/Case-Shiller Home Indices. This factor may continue to put rentals in a favorable light.
To be sure, a drop in housing affordability and tighter credit standards in the wake of the financial crisis likely will continue to sway young adults toward rentals once they do move out of their parents’ home.
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