The housing inventory crisis is keeping older millennials stuck with their parents
- In 2017, the share of millennials ages 18 to 24 living with their parents fell to a six-year low.
- But older millennials, ages 25 to 34, are moving out of home at a slower rate.
- That's likely because more people in this group would rather buy than rent, but are increasingly unable to find affordable houses on sale.
- US home prices are rising at double the annual rate of appreciation in a "normal" market, according to Zillow.
There's an important split, defined by age group, in which millennials in the US are moving out of their parents' homes.
This year, the share of 18 to 24 year olds living at home fell to the lowest level in six years, Census Bureau data show.
Younger millennials can thank a healthy jobs market that's helping them earn enough to pay rent, and a boom in multifamily housing construction that's creating the roofs over their heads, according to Matthew Pointon, the property economist at Capital Economics.
But the share of older millennials ages 25 to 34 that lives with their parents has held steady, as the chart below shows, even as younger millennials have moved out at a faster rate.
"We suspect the fact that the share of 25-34 year olds living at home didn't decline is down to the lack of homes for sale," Pointon said in a note on Friday.
House prices have recovered since the financial crisis. That's created a market favorable for home sellers since property values have appreciated and continue to rise, particularly in large cities.
Prices are rising at double the annual rate of appreciation in a "normal" market, according to Zillow. An S&P CoreLogic Case-Shiller report out earlier this week showed that home prices in 20 major cities rose in September at the fastest pace in over three years.
What's accelerating these price increases is a shortage of affordable housing. Construction has lagged the level of demand partly because of rising land and labor costs.
All this is proving tough for some buyers, especially those without the means to shop around in the luxury market for multi-million-dollar homes, where there's less of an inventory crunch.
The older group of millennials "is likely to include Americans looking to buy rather than rent, who are perhaps living with their parents to save for a down payment," Pointon said.
Possible tax changes could make homebuying even harder for older millennials. A proposed plan in the House Republican tax bill would cut the mortgage interest deduction in half, to a cap of $500,000. Homebuilder and realtor trade organizations criticized the proposal, arguing that it dampens the tax benefits of homeownership.
"The biggest risk of 2018 is not a bubble in home prices, but that fewer middle-class buyers will be able to keep pace with price increases," said Redfin chief economist Nela Richardson in a note.