Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the unemployment rate.
- Between 2007 and 2011, there were almost 3 million more doubled-up households.
- According to David Johnson and the Census Bureau data, the number and share of doubled-up households and adults sharing households across the country increased over the course of the recession. The “doubled-up” households are defined as those that include at least one “additional” adult, a person age 18 or older who is not enrolled in school and is not the householder, spouse or cohabiting partner of the householder.
- In spring 2007, there were 19.7 million doubled-up households, amounting to 17.0 percent of all households. In the spring of 2011, the number of such households jumped to 21.8 million, or 18.3 percent. In total, 61.7 million adults, or 27.7 percent, were doubled-up in 2007, rising to 69.2 million, or 30.0 percent, in 2011.
- Young adults were especially hard-hit, with 5.9 million people ages 25 to 34 living in their parents’ household in 2011, up from 4.7 million before the recession. The remaining 14.2 percent of young adults lived in their parents’ households in March 2011, up more than two percentage points over the period.
- These young adults who lived with their parents had an official poverty rate of only 8.4 percent, since the income of their entire family is compared with the poverty threshold. If their poverty status were determined by their own income, 45.3 percent would have had income falling below the poverty threshold for a single person under age 65.
- This data is available from the Annual Social and Economic Supplement to Current Population Survey. For more information: http://www.census.gov/cps/.
The current home sales activity is matching levels seen 12 years ago, yet the total population has increased by more than 30 million since then. The rise in population does not always mean a proportional rise in housing demand if people double and triple-up. That is, there is no housing demand if additional roommates are acquired and young adults move back in with their parents. Still, a clear-cut mismatch is arising between home sales and population, and this mismatch cannot continue indefinitely. There is a limit to the number of roommates it is possible to have, and parents and kids will get on each other’s nerves at some point. Thus the mismatch can be viewed as a source of future housing demand.
One interesting aspect of the population increase is slower natural population growth. (Immigration numbers are not considered here.) Considering only U.S. domestic live births and domestic deaths, recent data points to one of the lowest paces of population growth on record. Only 130,000 people per month are being added to the country. A more normal pace would be something closer to 150,000. This slowdown also means a slower pace of future move-up buyers arising from changing family circumstances.
The Great Recession has been painful in many respects. Population growth has also been hit. Still, this only means that the big mismatch between home sales and population continues to widen further but at a slower rate. The pent-up housing demand continues to build.
Demand for housing has been suppressed in the four-year period from 2007 to 2010. A review of household formation shows an annual increase of 500,000 to 600,000 over these years. A more normal gain would be 1 to 1.2 million each year. (As a quick clarification on households, one household corresponds to one housing unit. A single person living in an apartment is considered one household. A family of five people living under one roof is also considered one household.) Population growth has not slowed, rising consistently by around 3 million each year, but household formation has.
That is due to an increasing number of people deciding, or being forced by circumstance, to live with others. Rather than one roommate, many now have two. Some recent college graduates have returned home to live with their parents. Painful foreclosures have also forced people to find temporary arrangements with friends and relatives.
The number of rental households fell in the decade leading up to the housing bubble year. Way too many people became homeowners, many with easy loans that overstretched their budget, which then led to the subsequent downfall.
Since the collapse of the housing market, rental household figures have been steadily rising. There are now nearly 38 million rental households, which is 4.3 million more than in 2005. This means that there are more potential renters who could be turned into owners. However, some of the recent renters are likely to have damaged credit scores after foreclosures and some are facing just plain tough financial times during the current difficult economy. So there will be a sizable number of renters who cannot and should not become homeowners. However, given the recent fall in home values and great affordability conditions, there in fact could be more qualifying renters who could become homeowners now than there were a few years ago. If renters focus specifically on lower-priced homes and not the medium-priced ones, then it would increase their potential for qualifying to get a mortgage even more.
Many baby boomer parents who are approaching retirement age have been frustrated at receiving virtually nothing on their lifetime savings from CDs (certificate of deposits) at banks. Some baby boomer parents have become frustrated with their children – adult children – who can’t or won’t leave home. Household formation, after all, has slowed to a crawl despite decent overall population gains in the past 3 years during the Great Recession and the subsequent slow job market recovery. (The population can increase without a similar household increase if people double and triple up, or continue to live with family members.)
A perfect solution may be at hand for this type of situation. Parents buying a home for their kid – with all cash or something close – can then have their kid pay them the prevailing mortgage interest rate of around 5 percent or so. That 5 percent return surely beats the near-zero rate offered on bank CDs. At the same time, it is a great way to help the child leave the nest with compassion. Anecdotal stories on this trend have been surfacing in the past year. Recent unprecedented high levels of all-cash deals in today’s market also give indirect supporting evidence to this hypothesis. However, it is still unclear how prevalent the trend is, or whether there are hidden drawbacks to this strategy.
Have any of you had any clients like in the above situation? And does this kind of approach make sense? Let us know in the comments.
- The primary motivation to purchase a home varies between home buyers with an income below $175,000 and those with an income above $175,000.
- The primary reason among buyers with an income below $175,000 to purchase a home is the desire to own a home. A significant motivation for buyers with an income above $175,000 is the desire for a larger a home or a job-related relocation.
- The area purchased by households with an income below $175,000 and an income above $175,000 remained relatively the same. Over half of both income groups purchased their home in a suburb/subdivision. Eighteen percent of home buyers with an income below $175,000 purchased a home in an urban area, which was slightly higher than those with an income above $175,000.
- For more information on the Profile of Home Buyers and Sellers go to: http://realtors.org/research/research/home_buyers_sellers_maps
The adult composition of home buying households has changed dramatically since 2001.- In 2001, 68 percent of recent home buyers were married couples. In 2010, only 58 percent of home buyers were married couples.
- The share of single buyers, both single females and single males has risen. For single males, the share of buyers rose from 7 percent in 2001 to 12 percent in 2010. For single females, the share of buyers rose from 15 percent in 2001 to 20 percent in 2010.
- Unmarried couples have remained fairly constant between 9 and 7 percent of recent home buyers—in 2010, 8 percent of home buyers were unmarried couples.
- For more information on the Profile of Home Buyers and Sellers go to: http://realtors.org/research/research/home_buyers_sellers_maps
The typical household income in 2009 of recent home buyers was $72,200.- The household income of first-time home buyers has changed over time. From 2002 to 2008 household income steadily rose from $54,800 to $61,600. In 2009, the household income of first-time buyers decreased slightly to $59,900.
- Repeat buyers household income increased steadily on an annual basis from $74,600 in 2003 to a high of $88,200 in 2007. In 2009, the annual household income was $87,000 of repeat buyers.
- For more information on the Profile of Home Buyers and Sellers go to: http://realtors.org/research/research/home_buyers_sellers_maps
Jobs and Income in 2011: Edging Up
There are some markets with fewer jobs this year compared to last, a situation which is not helping the local housing market despite very high affordability conditions. However, there are also many markets that added jobs on net over the past 12 months. In fact, in total there are 1.3 million more jobs in the country as measured by asking companies about their payroll count – which is known as payroll employment. By another measure, taken by asking households whether they are working or not, there are 360,000 more people working – which is known as household employment. However, even in the job-creating markets, consumers have been hesitant to make a major purchase like buying a car or a home. Nonetheless, continuing job additions in the aggregate should lead to higher home sales at some point.
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