NEW YORK (MainStreet) – It's getting better for Millennials financially, but the housing market is getting impatient.
A Ned Davis Research report from a few months back indicated that joblessness, stagnant income and student loan debt had not only set Millennials back, but kept enough of them away from buying homes to account for 3 million homes' worth of property demand. That's 1 million more homes than the 2 million existing homes, or 4.6-month supply, that the National Association of Realtors says are in the national inventory.
According to the Census Bureau, 30.3% of Millennials ages 18 to 34 still live at home with their parents. That's more than 22 million out of 76 million Millennials, including nearly 12 million between the ages of 25 and 34. Eric Mintz, portfolio co-manager at Eagle Asset Management, notes that Millennials living at home are a huge headwind for the overall economy.
“The marriage rate has been down, but it has a lot to do with the financial well-being of the Millennial generation,” he says. “But it does appear to be on the mend and, as we work our way through the recovery, household formation should start to climb higher.”
Millennials have a whole lot of other obstacles to clear before reaching that point, however. The effective unemployment rate for Millennials, including those who've dropped out of the workforce, was 13.9% in March. Even those who are employed are having a hard time saving. They're coming out of college with average student loan debt of more than $33,000 apiece, with more graduates having $40,000 or more in student loan debt than at any other time in U.S. history. They'd like to own homes — and 43.4% of college-educated Millennials do, according to The Lending Tree — but 67.4% say they need a higher salary, 28.7% want to pay off student loans first and 25.7% say homeownership would be a possibility after they spent time and money on other things, such as traveling, investing and philanthropic missions. Besides, 44.8% have less than $5,000 in savings.
“As the economy is rebounding, this market segment is still feeling longer-term effects of the recession,” says LendingTree founder and CEO Doug Lebda. “Underemployment and low salaries combined with high student debt and uncertainty about the future are a reality that is affecting the housing market. The demand is there, but until this age group sees higher salaries, lower debt levels and feelings of settlement, millennial participation in the housing market will be slow.”
Meanwhile, Millennials' parents have been their most trusted financial advisors and biggest supporters. According to a survey by The Principal, Millennials' parents still chip in for their cellphone bills (12%), car insurance (8%), health insurance (7%) and rent (7%). Their investment is starting to pay off.
Joe O’Boyle, a financial advisor and retirement coach with Voya Financial Advisors in Beverly Hills, Calif., notes that Millennials living at home aren't always doing so because they're jobless. In many cases, it's the most fiscally responsible way they can pay down debt — if their parents go along with it. O'Boyle shared the story of a financially savvy Millennial client who is a doctor in Los Angeles and made the conscious decision to live at home with her parents after finishing medical school.
“She used the estimated $4,000 a month that would have been going towards rent and utilities and the cost of living on her own towards paying down her student loans, building up her emergency reserves and savings towards a wedding fund,” he says. “She has a great relationship with her parents, and lived at home for two years — $96,000 in savings — to put herself in a better financial position to start a life with her soon-to-be husband.”
One of O'Boyle's other clients, a sales director with a six-figure salary, opted to live at home to pay off student loan and credit card debt and build a $36,000 travel fund to give himself $3,000 a month for a year abroad.
“He said he had no concerns about finding a job upon his return,” O'Boyle says. “He would live with his parents for a few months when he returned from his trip. This way he could find a new job and build up his savings so he could live comfortably on his own. He said, 'The time for this adventure is now,' and he made it happen.
Overall, Millennials have seen their fortunes improve during the economic recovery. According to The Principal, 32% of employed Millennials have more job security than a year ago and just 4% have less job security. Another 30% of Millennials say their savings are in better shape now than a year ago, while just 15% are less comfortable. Finally, 33% of Millennials report their overall financial situation is better than 12 months ago compared with 16% who say it has deteriorated.
Eventually, even among homebound Millennials, that typically means a step into the housing market. O'Boyle notes that many Millennials with good jobs who can afford to live on their own make the choice, with their parents, to live at home so they can save money toward buying their first home. In the costly Los Angeles housing market, one of his Millennial client who is an attorney with student loans or credit card debt decided to live at home so she could save toward the down payment on a home. She lived at home for three years after she finished law school and saved up more than $200,000 to make a 20% down payment on a home in a nice neighborhood near her office.
“She said that 'There were some small sacrifices' to her social life that came with living with her folks, but that it allowed her to buy her first home and it was definitely worth it,” O'Boyle says. “The trade-off for many Millennials living at home is giving up some of their independence today for greater financial freedom tomorrow.”
— Written by Jason Notte in Portland, Ore., for MainStreet
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