people are marrying roughly 6 years later.Average first marriage age is not the only fac-tor—the incentives to live at home while pursuing higher education are great. Student debt loadshave been increasing consistently, and the latestFair Isaac data puts the average student-loandebt at more than $27,000. Mitigating additionalexpenses, such as housing, could incentivizestudents to stay at home longer after incurring these debts.Much lie the average age of a first marriage,the increase in the number of people living withtheir parents is neither a new nor an isolatedtrend. After declining from 1940 to 1980, the rateof multigenerational households among young adults has been increasing. And Europeans, forexample, have witnessed this prolonged delay of householding much lie the US, due to high youthunemployment and the lac of confidence thatcomes with poor employment prospects.
Household Shortfall and Giving a Push
The Federal Reserve estimates that the GreatRecession cost the US about 2.6 million house-holds by 2011. The 18 to 34 group alone had ashortfall of 1.9 million. This is both a blessing anda curse. We can expect some benefits as house-hold formation catches up and housing demandnormalizes around the growth. However, it taestime for households to form, and there could beinterruptions in the process. Another recessionor shoc to employment could severely shae theconfidence of these consumers.The recession had a direct impact on theformation of households through its effect on thelabor and credit marets. Tighter credit maretsforced individuals to save longer for the necessarydown payment for housing, or to build credit his-tories where none were previously necessary. Thedifficulty is exacerbated for young adults, espe-cially those with less than a college education.Young adults are also at a much greater dis-advantage when it comes to employment. At theend of 2012 the US unemployment rate was 7.8percent. But the unemployment rate for peoplebetween 16 and 19 is 23.5 percent, 20 to 24 sitsat 13.7 percent, and 25 to 34 sits at 7.7 percent.While the economy is improving, it will tae sometime for the improvements to wor their waydown the employment ladder. Up to a point, theprospects for employment become better with age,as sill development and training mae worersmore attractive to employers. Thus, the unem-ployment rate declines to 6.6 percent for ages 35to 44 and to 5.8 percent for ages 45 to 54, whichin turn builds confidence for individuals acrosstime and maes independence less risy.Employment prospects and wages improvewith educational attainment, and higher wagesand job security are important for fostering household formation. A person who graduatedfrom college or beyond is more than 1.6 times asliely to leave their parent’s home. Not surpris-ingly, there is also a correlation between earningsand leaving home—as earnings rise, the chanceof creating a household rises. This is intuitive butillustrates the importance of being able to affordthe move to independence. For instance, part of the reason for moving into the home after collegeis to reduce the costs of looing for wor. Andthose with a college degree have less difficultyfinding a job match, and therefore have the abil-ity to leave more quicly. This supports the ideathat, for many, living at home (or moving bac) isa way to “get their feet under them” and meant tobe a temporary arrangement.
The Great Independence Move
2011 saw 1.1 million households created. A con-tinued bounce will require employment and wagegrowth and stabilization in housing prices. Thecurrent Federal Reserve policy aiming to reduceunemployment to 6.5 percent in the aggregate isa positive for household formation, as it shouldbring down the rate somewhat even for the younger bracets and educational groups.But for the economy, it also matters what indof households are formed. There is a difference inthe spending power, and therefore economic rele- vancy, of the mean household. Family householdshave mean incomes of nearly $80,000 with mar-ried couples pulling in a mean household wage of $91,000. The mean nonfamily household incomeis about $44,000 with female headed householdsmaing $38,000 and male headed households$50,000. Granted, these are not representativeof younger households which will typically havelower than the mean income for their group, butit does indicate a general trend. Families havemuch more spending power, and have more of animpact versus the creation of a nonfamily house-
“Much like the average age of a first marriage, the increase in the number of people living with their parents isneither new nor an isolated trend.” “The economy seems to be slowlyimproving with employment ticking up and growth returning to thehousing market, and these forcescould unleash an army of basement dwellers into the economy.”