Population growth and young adults moving out of their parents’ homes are the main drivers in the nation’s need for more new houses. The greatest contribution to household growth typically comes from individuals 25 to 34 years old, but builders should take note: young people are not buying homes at the same rates their parents once did.

The headship rate rises from 16 percent to 48 percent in this age group—known as Generation X—as they finish college and become financially independent. There are 42.5 million people in this age range, and they are followed by 43.9 million in the 15 to 24 age cohort. If all these people were to form households at the same rate as the baby boomers did, there would be the need for 1.3 million more homes per year over the next 20 years. Replacements, second homes, and some allowance for additional vacancies to smooth movements would add another 400,000 houses in that 20-year period.


Gen Xers Face ChallengesBefore you start building all those new homes, however, some trends are important to consider. The Great Recession continues to impact the ability, willingness, and plans of members of Gen X to form independent households. Members of Gen X—also referred to as echo boomers—are postponing independent living, marriage, and children. Birth rates hit all-time lows in 2012 (half the level of the baby boom), and marriage rates are the lowest they’ve been in a century.

Throughout the 1990s and early 2000s, 10 percent to 12 percent of adults aged 25 to 34 lived with their parents. That percentage started to increase steadily in 2006 during the early stages of the economic slowdown. By 2011, 19 percent of young adults lived with their parents. In absolute numbers, 4.7 million young adults in their parents’ homes grew to 7.5 million in six years.

Furthermore, states that have the highest growth in young adults living at home also have the highest unemployment rates for that age group. The correlation is strong and suggests that for every 1 percentage point change in the unemployment rate among young adults, the share of that age cohort living at home changes by a half percentage point.


Why Young People Rent Of the young adults not living with parents, virtually all are renters. From 2004 to 2012, the share of those renting went from 50 percent to 58.5 percent. The absolute number of renters rose by 1.7 million while the absolute number of owners fell by 1.3 million—a 3 million homeownership reversal.

Meanwhile, builders report that about 20 percent of their sales are to first-time home buyers, as opposed to a more normal sales rate of nearly 30 percent.

Young adults continue to express the goal of owning their own homes, but many are faced with challenges such as job availability, tight credit standards, inadequate savings for a down payment, student debt, and careers that are likely to require moves. But there are encouraging signs.

The employment picture is expected to improve as the economic recovery gains momentum. Credit standards are likely to revert to more reasonable levels of the 1990s and early 2000s once policymakers determine the future of the federal government’s involvement in the mortgage market.

Younger workers with full-time employment can save money for a down payment and make some inroads in paying down their student debt. And, as job experience creates more stability, it will be less likely that young families will have to move for career advancement.

Another encouraging factor is that unemployment rates for young adults in Generation X are now the same as the general population, down from nearly 1 full point higher in 2009 and 2010. As this trend continues, a revival in typical household formations is expected.