But is that dream still alive? If you live in major cities like New York and San Francisco, where bidding wars for property are alive and well, then the answer might be yes. But for large swaths of the country, the residential housing market hasn’t caught the same kind of fire.
The New York Times reports that investment in residential housing is a smaller share of the overall economy now than at any time since World War II. In 2013, housing activity as a share of GDP was just above 3%. That number is even lower than in the 1980s, when mortgage rates hit an astounding 20%, and the 1990s, when many mortgage lenders failed. By contrast, in the late 1940s, housing activity as a percentage of GDP hovered between 4% and 6%.
So why has housing been a drag on the economy? The culprit seems to be that fewer people feel the need to realize the dream of homeownership. “Now our main challenge is housing demand, and that means we need more people forming households,” Stan Humphries, chief economist at Zillow, tells the Times.
Given current demographic trends, housing demand should be on the rise: The U.S. population has grown by about 20 million since the housing market tanked in 2006. But that increase isn’t leading to new household formation. In fact, there’s a 2.4 million household deficit to explain. That’s the number of new households that should have formed, based on historical demographic patterns, but didn’t, according to Jed Kolko, chief economist at Trulia.
The biggest reason behind the “missing” homebuyers seems to be the frequency with which young people live with roommates or their parents, either by choice or by financial necessity because they can’t find jobs.
But Trulia’s research found that even those 18- to 34-year-olds who do hold jobs are more likely to live with their parents now than they were before the recession. In 2013, about 25% of working people in that age group lived with parents, compared to about 22% in 2007. College debt or lack of job security could be what’s keeping even the employed members of the younger generation from living on their own.
One segment of real-estate construction that is on the rise, however, is multifamily properties, mostly for rentals. This category made up 34% of total housing permits issued, the highest proportion since the 1980s. Rentals are likely on the rise because they are attractive to tenants who can’t decide whether to buy, as well as retirees who don’t want the hassle of owning a home.
The big-picture takeaway is that in order for the economy to grow, the housing market needs to pick up. But in order for that to happen, more people need to feel financially secure enough to buy a home. Even then, it may take years for young people to have built enough in their savings to venture out on their own.