Millennials could be dragging down the housing market, and--in effect--the national economy.
The bust in the housing market was a large part of what sparked the Great Recession in 2007. In the past few years, as the economy has recovered, the unemployment rate went down and the stock market has bounced back. However, the housing market hasn't improved, and remains a drag on the economy as a whole.
Now young people graduating from college are entering an improving job market. But don't expect these millennials starting their careers to give the housing market a boost by buying their first home.
Burdened by a $1 trillion in student loan debt and wary of taking on a new loan with a home mortgage, millennials are choosing to rent or move back in with their parents. From 2009 through 2011, just 9 percent of 29-34-year-olds were approved for a first-time mortgage, according to a report from the New York Federal Reserve. Pierre Lapointe, a financial strategist, says student-loan debt is turning into “a significant drag on the housing market.”
The Pew Research Center found among those 25 to 34 year-olds who have taken shelter with their parents, 80 percent are just fine with the arrangement. Meaning, they aren't in a rush to get to a point where they do jump into the housing market.
The effects can be felt throughout the economy, not just in the housing market.
Minnesota Public Radio calls them "Generation Rent," and points out that when an entire age group is avoiding home ownership, that has ripple effects throughout the community.
"My subjective experience is that when people buy a house," Dan Ariely, a professor of psychology and behavioral economics at Duke University, tells MPR, "they immediately start renovating and fixing it — going on Sunday afternoon to Home Depot, doing things that I think people would never do for houses that they rent."
With millennials avoiding purchases to take care of a home, on top of not paying property taxes, it presents a problem for revenues to local governments. Rolf Pendall, a housing expert at the Urban Institute think tank, told MPR that local officials will "absolutely have a problem for [their] long-term commitments, [their] long-term budgets."
They're not only putting off buying a home, but they're choosing to get married and have children later in life as well. Comparing U.S. Census Bureau data, millennials are getting married at half the rate their parents generation did.
Mark Zandi, chief economist at Moody’s Analytics, estimates that each time a household is formed it adds $145,000 to output that year as the spending ripples through the economy.
As the New York Times put it, millennials may be saving a lot of money living at home or by just renting an apartment, but they "deprived the economy of a lot of potential activity, too."