Are millennials becoming real estate’s lost generation?

Smiling couple leaning on boxes in new home

Millennials are moving back in with mom and dad in staggering numbers. Is this due primarily to the recession or are other factors in play? More importantly, what are the ramifications for the real estate industry?

A recent study out of the U.K. cites new brain research that confirms what many older adults who have their millennial children living at home already know: Their grown kids behave more like adolescents rather than adults.

Based upon the demographics, we should be in the midst of a huge housing boom. While markets are strong in many areas, the young people we would expect to be in the market are not as active on a percentage basis as previous generations. A major portion of this may be due to the high unemployment rates for those under 30.

To illustrate this point, there are “8.2 million young adults ages 20 to 24 who can’t find full-time employment, including 4.1 million who are disconnected from both work and school and another 3.6 million who are working part time when they want to work full time.” For college graduates in this age group, the unemployment rate is double what it is for those in their 30s and 40s.

What’s disturbing about this trend is that there are “4 million young adults who are not engaged in any sort of activity to develop their human capital; they are not gaining education in school, nor are they learning skills or getting experience through work.”

Millennials are often cited as being the most highly educated and the most optimistic of all generations. Over the last year or so, however, many researchers have started to refer to this group as the “lost generation.” The reason? Their high expectations and sense of entitlement have been crushed by the reality of the recession. The high-paying jobs, the opportunities that should be due to them because they are “unique and special,” have yet to materialize.

In terms of real estate, this has meant that many college graduates as well as unemployed or underemployed millennials have moved back home with mom and dad.

While it’s easy to attribute these numbers to the recession, there may be another factor that is contributing to junior returning home.

According to the latest brain imaging research, adolescence actually extends to about age 25. The researchers identified “early adolescence” as being from ages 12-14. “Middle adolescence” is from 13-17. “Late adolescence” extends from 18-25. The imaging research showed that major development and shifts in the organization and brain wave patterns continue until a person’s mid-20s.

Previous studies have revealed that the higher-level thinking centers that evaluate risk do not develop completely until age 25. This finding at least partially accounts for the risk-taking behaviors of many adolescents including the poor driving records for teenage drivers. It also mirrors the study cited above.

What are the ramifications of these findings for the real estate industry?

1. Gen Y Becomes the permanent “Gen Rent”?
In the past, when young people first went to work, they would buy a car and start saving for a down payment for a home. For the 8.2 million who can’t find full-time employment, these choices are not an option. As a result, many of our young people will be stuck either at home or in a rental since they can’t afford a down payment on a house.

Moreover, even if the economy improves, if they have children it will be even more difficult to save the money for a down payment. This means the demand for rental property will be high and that fewer millennials will become property owners in their 20s or early 30s.

2. The midlife squeeze
Baby boomers who would like to downsize to put more money toward retirement are having to continue to maintain larger homes in order to accommodate their “adolescent” adult children and/or an aging parent.

What is exacerbating the situation is that a substantial number of millennials not only expect their parents to provide room and board, they expect them to drive them where they want to go. To illustrate this point, two of my closest friends each have a child and the child’s spouse living with them. In both cases, one of the millennials refused to get a driver’s license and expected a parent to be available to drive her to work.

Couple this with elder care responsibilities for many adults and it’s easy to see how this can drain both the person’s energy and bank account. The result is that many boomers will have to continue to work well into their 60s and 70s because the extra costs have left them unable to put money aside for retirement.

The one saving grace for those who are over 62 and have substantial equity in their homes is that they can supplement their Social Security or retirement income with a reverse mortgage.

Until the economy improves, millennials are faced with limited choices as are their parents who are jeopardizing their retirements to care for their children and their parents. Let’s hope that things improve for all generations soon.

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