For the millions of parents who wonder when their adult kids will move out of the basement, Goldman Sachs Group Inc. has some insights about what’s holding back the millennial generation.
The lackluster jobs market, housing affordability, student debt and delayed marriage may keep a lid on household formation for years to come, according to the New York-based bank’s analysis.
“The share of young people living with their parents has increased relative to pre-recession rates for all labor force status groups, not just the unemployed and underemployed,” said Jan Hatzius, head economist at Goldman. “The share of 18- to 34-year-olds living at home might not fully return to pre-recession rates.”
The percentage of that group living at home had hovered around 27 percent before the Great Recession in 2008 triggered a surge to more than 31 percent, according to data compiled by Goldman and the Department of Commerce.
The higher portion of basement dwellers is blamed for holding back a stronger recovery based on higher wages and spending growth that bolster each other in a virtuous cycle.
The millennial generation has about 53.5 million people in the labor force, surpassing Generation X’s 52.7 million and Baby Boomers’ 44.6 million workers, according to a study
by Pew Research.
Part-Time Help Wanted
A major difficulty facing millennials is the high number of part-timers who want a full-time job, Goldman says.
“Young people’s labor market prospects have not fully recovered, with involuntary part-time employment in particular a continuing problem,” Hatzius says in the August 3 report
, which was co-authored by Goldman economists David Mericle and Karen Reichgott.
The economic recovery has been gradual, with the problem of lower household formation only partly explained by employment data, they say.
“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,” according to their report.
has risen to a record $1.2 trillion, making it the most significant liability after home mortgages, according to data from the Federal Reserve Bank of New York.
In addition to carrying record levels of student debt and marrying later in life, millennials are confronting unaffordable housing with rent-to-income ratios at historic highs, Goldman says.
Despite the difficulties face by the millennial generation, its massive size bodes well for home-building, even if only two-thirds of basement-dwellers move out in the next 10 years, Goldman says.
“Such a scenario would imply a trend demand for new housing units of about 1.6 million per year, well above the current sub-1.2 million run rate of housing starts,” Hatzius says. “We continue to see plenty of upside for residential investment.”
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