New Home Starts and Stops

Housing construction has had

A month that's exceedingly bad

And the drop may be due

To Millenials who

Live at home with their Mother and Dad. 

The trouble of this generation
Finding jobs after their graduation
Has certainly stalled 

The stat that is called

The rate of new household formation. 

It's up to America's young

To climb on the opening rung;

From the nest you must fly

So the housing supply

Will not be so much overhung. 

Two loosely related statistics came out on Thursday: first, that the number of US multigenerational households had climbed to a new high; and second, that the number of housing starts had fallen off dramatically in June.  The first datapoint indicates less demand for homes and the second, less supply.

The Pew Research Center, in an analysis of US census data, determined that 57 million Americans, or 18.1% of the population, are living in households that combine young adults and their parents or even grandparents.  This is the largest proportion of such households since the '50s.  Pew sees the trend thusly: "The declining employment and wages of less-educated young adults may be undercutting their capacity to live independently of their parents."   While such arrangements may serve a few purposes, they do directly reduce the demand for housing.

Meanwhile, the Commerce Department announced that housing starts across the USA had fallen by 9.3% in June; in the South, they fell by 30%.  In spite of my poetic license above, most industry people interview by the Wall Street Journal did not blame stay-at-home Millenials for this development, which actually flies in the face of a more broadly upward trend over the last few years.  Many factors were cited, including the lingering effects of wet winter and spring weather; lack of skilled construction labor in some markets; and persistently weak consumer confidence.

However, the multigenerational household trend is not a flash in the pan; it has been building since the '80s, and over the long term it must impact the housing market in a fundamental way.

Delayed Gratification

Said a young man without a home loan,
Back at home with his folks in Bayonne:
"While household formation
Is met with frustration,
My wild oats are sitting unsown."

Might there be demographic implications in the US economic data and outlook? A couple of current posts in The Wall Street Journal's Real Time Economics blog leave one to wonder if a "baby bust" may be developing. First, stagnant wages are limiting consumer spending; since October 2010, real wages have declined 1.2%, and consumers have limited capacity to tap their already tapped-out credit card lines to propel domestic spending. Secondly, RTE reports that the Conference Board has looked into the future of housing and seen a wave of renting and downsizing; actually, that sounds like the present if you add living at home with the parents. It all adds up to less room for the pitter-pattering of little feet, and less money to keep them in baby booties, in the foreseeable future.

Student Loan Blues

"Though college, I felt, was a sure thing,
As of now, unless gold I'm unearthing,
To pay off my loan,
I'll have to postpone
My homebuying, wedding and birthing."

An entire generation is blocked from building a life while in the thrall of its towering college debts, writes Sue Shellenbarger in The Wall Street Journal. Student loans, which reached $1 trillion last year according to the Consumer Financial Protection Bureau, may ofter eat up half of a young graduate's income, particularly if they have had to settle for a lower-paying job than they expected. Like the killer who won't die in a horror film, student loans can not only prevent one's qualifying for a home mortgage or car loan, but cannot be extinguished in a bankruptcy.

What can young people do to avoid such an unhappy fate? There are no panaceas, but some sensible suggestions would include:

• Approaching college with the goal of building valuable, employable skills by which to enable one to pay the loans down faster; 
• Taking price into account while shopping for schools, with a willingness to consider the lowest priced option;
• Accepting federal or state loans (preferably subsidized) before private ones.