Housing Formation in a Recession

Post date: June 27, 2013
Article by: Gary Chong-Qui

In past years, a stigma seems to have followed people moving back in with their parents after college. Most undergrads think they’ll have their lives sorted out by the time graduation day comes, or at the very least have some direction for moving on. The statistics typically show that many college grads take jobs and start their own households. Unfortunately, many young adults have delayed their entry to the housing market due to the economic recession of 2007-2009 according to recent research.

Kwan Ok Lee of National University of Singapore and Gary Painter of USC Sol Price School of Public Policy found that the option of moving home with Mom and Dad is gaining favor. When potential households (those with the potential to buy houses for the first time) are assessing their options, the economic climate is a big factor in the decision-making process. Recessions and high unemployment rates make living with parents a more attractive alternative to recent grads and other young adults facing the job market, which explains why the “rate of young adult men living at home has grown rapidly from 14% to 19% from the beginning of the recession until 2011.”

There is some ambiguity around the data concerning parental wealth. Parental wealth appears to generate an incentive for young adults to remain at home since their parents are capable of providing for them, while further data shows that parents with more wealth assist their children in forming separate households.  Among this latter group, the data also suggests that those whose parents have wealth in the form of assets, like real estate (other than the home they inhabit), equities in business, vehicles, etc., are more likely to buy a house than rent. Children whose parents own their own home are also more likely to buy.

For those who move back home, this declining rate of entry into the housing market is unfortunate, especially since the economic downturn has been accompanied by a buyer’s market. Interest rates and housing prices are historically low right now, making it an opportune time to start a new household. Hopefully, the future will bring a more accommodating job market for recent graduates and young adults, and they will choose to invest in their own homes.

About DeVoe Moore Center

The DeVoe L. Moore Center is conducts economic research and policy analysis focused on state and local policy issues and is located in the College of Social Sciences and Public Policy at Florida State University in Tallahassee. As an educational institution the DMC provides professional research experience to undergraduate and master’s students through an extensive program of internships and independent study, preparing them for a future in public policy, economic development, public sector accountability and entrepreneurship.
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