More than one-in-five working age Millennials live at home: California has two of the top four metro areas with Millennials living at home
The kids are not moving out. The high cost of housing is having a big impact on the Millennial generation. In high cost areas you are seeing homes being sold to investors (including foreign buyers) and those that do buy as owner occupied tend to be a lot older than previous first time buyers. Even from family and friends it is interesting to see a few homes sold in their varied neighborhoods only to be turned into rentals immediately – these were very standard single family homes in neighborhoods where rentals were rare (not anymore). Yet another continuing trend is the number of working age Millennials living at home with mom and dad. Mom and dad are your typical Taco Tuesday baby boomers and are “shocked” that their kids can’t afford to rent let alone buy a home. Given current prices Millennials are not going to be buying in many high priced markets for years to come.
California leads the way
In total, 2.3 million adult “kids” live at home with their parents in California. Across the U.S. the total is roughly 10 million. So California as a percentage has more Millennials living at home than the nation overall.
Take a look at the top metro areas where Millennials are living at home:
Miami has the highest percentage of Millennials living at home. This is followed by Riverside, Los Angeles, and finally the New York metro areas. So two of the top four areas are not only in California, but in Southern California. This makes total sense since Los Angeles is the most unaffordable rental market in the U.S. based on current rents and what families earn. In fact, there are only 4 markets were the percentage of Millennials living at home is above 30 percent.
And this isn’t a surprise since in L.A. a basic crap shack is selling for $700,000. In some cases you might be paying $500,000 for a box in an area with poor schools and high crime rates. Yet this is the cost of living in this market. So many Millennials just stay at home. They can’t even afford the current level of rent.
People ask how this is being done but it is very simple. More disposable income is going into housing and less of it to other consumption goods. The stats are startling in terms of how many L.A. households spend close to 50 percent of their income on rent. It is also shocking how much households spend on their mortgage payments. This is why I’m not surprised to see people living in million dollar homes shopping at the 99 Cents Store and also Wal-Mart – in many cases these people are house rich and cash poor. Yet they somehow can’t quit California and why would they? Many now have their kids living right back at home. In L.A. this trend has only moved in one direction:
So this brings up an interesting question in terms of how this impacts the market going forward. Does this matter? It does. People tend to forget that real estate prices are set at the margin. Some people might be surprised that sales volume is downright pathetic in California. The last time sales volume was this low was in 2008-09 when the market was full on imploding. Yet somehow, this is a booming market. Booming in price, not sales. The last bubble had booming prices and booming sales.
It is very interesting to look at neighborhood data in terms of mortgages. I encourage anyone to purchase a one month subscription to any mortgage data mining tool and scope out a neighborhood at the micro level. We did this for a Torrance neighborhood and of course the results are somewhat surprising.
Will Millennials drive the market higher when they get off the fence? Millennials were supposed to get off the fence a few years ago. Older Millennials are now creeping into their mid-30s. Not exactly babies. At some point you are going to have a sea of 40 to 50 year old hipsters unable to purchase property in California. Every couple of weeks I get an email from these “kids” asking about the process of getting the home with siblings when mom and dad eat that last taco. Say you have three kids and that $700,000 crap shack is to be split among the three. Each will get $225,000 to $230,000 depending on expenses (assuming an equal split) and that is enough for a down payment but can they cover the monthly nut? So far the evidence says no.
This trend actually provides more evidence towards the rental revolution trend. This is why builders are building multi-family units versus single family homes. Can’t argue with living at home rent free.