Millennials Stick in the Nest Despite Improving Job Market
NEW YORK -- Even an improving job market isn't enough to get millennials to move out of their childhood homes, says Goldman Sachs (GS). At least not when they're still grappling with high student debt, low starting salaries and increasing rents.
Unemployment among 18- to 34-year-olds has dropped from a high of nearly 14 percent in 2010, just two years after the financial crisis, to 8 percent. That's almost reaching the 7 percent rate in 2007, but it hasn't enabled the generation born from 1980 to 2000 to match historical patterns in achieving one of the most basic adult milestones -- getting their own places.
With a population of about 92 million, millennials are the largest generation in U.S. history, outnumbering even baby boomers, so their spending patterns are important for both individual companies and the economy as a whole.
"While moving into a rental unit usually presents a lower hurdle than becoming a homeowner, young people who now have jobs but struggled in recent years might not have enough savings to cover an initial deposit or might fall short of landlords' expectations for a potential tenant's credit score, savings, or income history," David Mericle, an analyst for Goldman Sachs, wrote in the report.
According to the Goldman report, which cites U.S. Commerce Department data, the percentage of young adults living at home grew from around 26 percent in 2006 to about 32 percent in 2012. In 2014, it started to decline, but progress toward pre-recession levels has stalled in the past six months.
The chart below compares the percentage of young adults living at home in 2007 and in 2015, across various employment statuses. While it would make sense that the unemployed and under-employed part-time workers -- those who would like full time work but are unable to find it -- would stay at home, even the ones with the jobs they want are doing so.
Despite gains elsewhere in the economy, what's keeping millennials at home may be summed up the most easily by the statement of Jimmy McMillan, the failed New York state gubernatorial candidate: "The rent is too damn high."
Since 1981, the ratio of rent to income has climbed 15 percentage points for all workers and more than twice that much -- 35 percentage points -- for workers under the age of 34. A spread between younger and older workers is expected as incomes tend to rise with age while housing needs tend to flatten. (The apartment you had in your early 20s would likely be unsuitable for starting a family in your 30s, but the house you have in your 30s could reasonably fit your needs for decades.)
However, factoring in a slow career start coupled with a high student debt burden makes the dream of renting a home improbable -- let alone the dream of owning one.
Not helping matters is that wage growth has been slow in recent quarters and, when adjusted for inflation, salaries have largely been flat since the late 1970s. That's not lost on Federal Reserve Chair Janet Yellen.
"We have been through a period in which wages have been, in real terms, growing less rapidly than productivity," Yellen said in testimony to the Senate Banking Committee in July.
"It is evidence of some remaining slack in the labor market, so my forecast is that we will see some pickup in wage growth. But it is important to remember that there has been increasing wage inequality in the United States over a long period of time, certainly going back to the mid- to late-70s."