US Demography: Household Formers, Renters & Owners
Last week, the Census Bureau released household formation data through the second quarter, including monthly details for April, May, and June. Melissa and I are waiting to find some evidence in the data showing that the Millennials are forming households by getting married, having kids, and buying homes rather than renting. We didn’t find much of anything showing that this is starting to happen in the latest Census report.
The US economy could certainly use some help from the Millennials. Real GDP growth has decelerated on a y/y basis from a recent high of 3.3% during Q1-2015 to only 1.2% during Q2-2016. The Millennials seem to be doing their fair share for consumer spending, which continues to rise at a solid pace (Fig. 1). This cohort is more digitally sophisticated than older cohorts, which might explain why a record 28% of GAFO retail sales occurred online during May (Fig. 2).
However, the Millennials aren’t doing enough to boost demand for owner-occupied homes, since they continue to prefer renting.
Consider the following:
(1) Getting married later. Melissa and I estimate that there are 54 million Millennials, born between 1981 and 1994, making them 22-35 years old this year (Fig. 3). By that age range, older cohorts, especially the Baby Boomers, tended to be married with at least one child and living in their own single-family home. It has been different this time, as the median age of marriage has headed north over recent decades, putting fewer Millennials into that married-with-children home-owning category. The median age of marriage has risen since 1980 through 2015 from 24.7 to 29.2 for men and 22.0 to 27.1 for women (Fig. 4).
(2) Housing not a home. In addition, the Millennials don’t view homes as a safe asset after seeing the housing bubble burst. Those who would like to buy a home are facing much tougher lending standards following the financial crisis of 2008. So it’s no wonder that many of the Millennials, along with other potential first-time homebuyers, aren’t buying homes but are renting instead.
The percentage of homeownership among all households dropped from a record high of 69.2% during Q4-2004 to 62.9% during Q2-2016, the lowest since the start of the data in Q1-1965 (Fig. 5). Ownership rates have dropped for all age groups, but the biggest declines since their 2004 peaks have been for those under 35 years old (down from 43.6% to 34.1%) and those between 35-44 years old (down from 70.0% to 58.3%) (Fig. 6).
(3) Urban rental jungle. The flip side of the drop in homeownership is that renters now account for 37.1% of all households, up from a record low of 30.8% during Q2-2004, and the highest since the start of the data in 1965 (Fig. 7). Anecdotal evidence suggests that many Millennials prefer to rent in urban areas rather than to rent or own a home in the suburbs.
Over the past four quarters through Q2, household formation was close to 1.0 million, with the number of renters up 967,000 to 43.9 million, which is up 10.9 million since mid-2004 (Fig. 8). The number of homeowners fell 22,000 y/y to 74.4 million, or down 2.1 million from its record high during Q4-2006. (See our Household Formation, Homeowners & Renters.)
US Demography II: Selfies & Other Strangers. Contributing to the renter boom is the growing number of people who are single rather than married. Since the start of 2014, for the first time ever in the US, the number of singles in the working-age population--which includes everyone 16 years of age or older--equaled the number of married people (Fig. 9). That’s up from 42% 30 years ago to 50% now. In June, 30.7% of the working-age population was never married and 19.2% was divorced, separated, or widowed (Fig. 10).
Of course, most singles live with their families or some other group arrangement. Annual data available from 1970 through 2012 show that the percentage of all households consisting of singles living alone rose from 17.1% to 27.5% (Fig. 11). Nonfamily households, which include all those headed by singles living either alone or with someone else, rose from 18.8% to 33.6% over this same period.
US Demography III: Households, Families & Nonfamily Incomes. So where are we going with all this? Melissa and I continue to work on explaining why inflation-adjusted personal income per household is so much higher, and actually at a record high, compared to the Census measure of income, which has been stagnating since 2000. Previously, our preliminary analysis showed that the former is closer to reality than is the latter. Our latest work corroborates our initial conclusion. We will report more on this shortly.
We are also examining the impact of demographic trends on income, particularly on a per-household basis. People not only are marrying later in life but are living longer also. Life expectancy at birth was 78.8 years during 2014, up from 75.1 years 25 years ago (Fig. 12). If the Millennials continue to get married later in life and the Baby Boomers continue to live longer, the percentage of nonfamily households, including singles living alone or with someone else, will continue to rise. Nonfamilies are likely to have fewer earners and other sources of income than families.
As the percentage of nonfamily households continues to grow, that demographic trend will continue to weigh on real mean household income. In other words, some of the apparent stagnation of this measure of income may be a result of Millennials postponing having families and Baby Boomers living longer and on their own.
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.
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