‘Missing households’

A new economic development in America is something called “missing households.”

This isn’t about kidnapping, though. Rather, “missing households” references people who are residing in someone else’s home for financial reasons. The number of these combined households increased in the past year and the development represents a challenge both for the real estate market and the overall economy.

People in these households are adults who would be renting or owning a home if household formation had remained at the typical rate since the economic downturn. Some of these adults, estimated at 2.4 million, live with their parents,; others are seniors who live with their adult children, and others are renting a room in a home. The number of missing households increased 100,000 from the same time the previous year. While this is below the peak of 2.6 million in 2011, it’s still much higher than the 900,000 in 2008, according to Trulia.

As the economy improved after the recession, household formulation has not recovered and it’s putting downward pressure on the housing recovery. There are several factors that are contributing to slow household formation, including the fact that unemployment is still high and wages have not increased. Young adults lack the required down payments and credit ratings needed to qualify for mortgages. Adding to these challenges is the tight inventory of entry level homes. Also take into account that there are high rents attributed to increasing demand and limited inventory.

Student loans and the debt they place on graduates are also blamed for young home buyers not being able to qualify for a mortgage.

The outstanding student national debt is approximately $1 trillion. By the end of last year, only 4% of 25- to 30-year-olds with student loans were given a mortgage, whereas in 2005, approximately, 9% were granted a mortgage. Of the 40 million student loans, approximately 17% were delinquent on their payments by at least three months.

Another factor that creates missing households is the trend that Americans are waiting longer to marry and start families. What is the composition of these missing households? Reportedly, more than 50% are Americans 18 to 34 years old. Of those, approximately one-third of them live with their parents. The statistics show that these employed Americans are more likely to reside with their parents than those prior to the downturn, according to the Census Bureau.

In June of this year, first-time buyers represented 29% of existing homes sale compared with 32% in June of last year, according to the National Association of Realtors. The median credit score for first-time buyers was 720, below the 750 for buyers upgrading their homes. Frequently, first-time buyers are competing with cash buyers for properties, which is hampering their success.

Women 45 to 54 years old are becoming the fastest group of single-female homeowners. They increased 120% from 1982 to 2012. This may be due to the largest baby boomer population entering this age group over the last several decades, and the rate of divorce, according to Redfin.

Single women have outpaced men since 1982 when the data began being collected. Women under 35, however, appear to be delaying purchasing homes until later in life. Women with college degrees and salaries exceeding $65,000 were contributors to their increasing rate of home purchases.

Watching economic and demographic trends and indicators helps analysts assess the strength of the real estate market.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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