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Demographics in America: The Millennial Wave to Come

MILLENIALS  I come across a lot of statistics in my day-to-day readings, and the statistic most pertinent to today’s show is this: The percentage of 18-34 year olds living with their parents is 30%. This is up significantly from a decade ago. Besides spending more time living at home, this age group  also spends far longer in school and delays important life decisions, such as getting married and buying a home, until later in life. This is the shape of the Millennial Wave, and it’s set to make landfall in just a few years.

 

On last week’s show, we discussed the early formation of this wave: how historic events and trends that were set into motion decades, and even centuries, ago determined the shape and intensity of the Millennial wave. This week’s show is the second installment in the series on Demographics in America and covered the current state of the Millennial Wave. It is still six years until the first Millennials begin to enter their most economically productive years (roughly age 40-60), but the current state and composition of this demographic is having immediate effects on the housing market and broader economy.

 

As mentioned, Millennials are delaying many life decisions far longer than previous generations. They’re graduating college later, leaving home later, finding a spouse later, and having children later. This is having an immediate effect on the housing industry. A substantial portion of Millennials still lives with their parents, while those who have moved out are largely electing to rent rather than buy a home. This has caused a booming rental market and significant increase in construction projects for apartment complexes.

 

Another factor affecting Millennials is a weak job market. Many Millennials graduate from college with severely diminished employment prospects. Some neglect to even look for a job, while others can only find employment in fields far below their education level. This, more than anything, contributes to the Millennial habit of delaying maturity. Few find themselves in the kind of thriving financial situation necessary to start a family.

 

The bleak future outlook for Millennials is having an effect on the Baby Boomer generation right now. As Millennials delay buying homes and starting families, Boomers are finding demand for their current residences severely weakened. Many Boomers that had planned to downsize their home are finding it difficult to sell their current large homes quickly and at the price they had anticipated. Worse, uncertainty in the economy is making it difficult to make near-term financial plans. The economy has been oscillating between no growth and anemic growth for several quarters. Second quarter GDP grew at a relatively brisk 4%, but nobody is sure what to make of this. Interest rates have been tracking this uncertainty. Depending where the economy is a year from now, rates could be at their present levels or much higher. Nobody is quite certain where they’ll be!

 

What this means to current homeowners is that wherever interest rates are when they go to sell their home will determine how high demand is for their home. If rates are higher, buyers will have to devote more money to the interest rate and less to principal, meaning they may decide to buy a smaller and cheaper home to offset the rate increase. This could alienate many buyers from higher-priced homes. This, in turn, makes it difficult for individuals to plan for the near future with any certainty.

 

These are just a few ways the current shape of the Millennial Wave is affecting the housing market. I spent the second hour illustrating this point with further examples. Inquiring minds will want to check that out in the archive. And don’t forget to tune in next week for the concluding installment of my series on Demographics in America.

8-2-2014 Millennial Wave To Come Part I

8-2-2014 Millennial Wave To Come Part II


 

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About Jay Garvens

Standing at the intersection of our local real estate market and the nationwide financial industry, Jay Garvens gives you the complete picture of every story affecting today's mortgage market! From personal finances to the political decisions moving markets, tune in for a weekend dose of straight talk from Colorado's most candid mortgage industry commentator! Honest, unbiased, and always unpredictable, Jay explores every facet of today's mortgage industry with an approach that's refreshingly blunt and enormously entertaining!

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