U.S. Millennials Are Getting Ready to Rent and Buy

Guild Investment Management |

The improving employment picture noted above will have outsized effects on one U.S. demographic group in particular: millennials.

The Great Recession and the recovery that followed have been notable for anemic job and wage growth, and that’s been notable especially for workers in the 20 to 24 age group. Over the past year, though, that group has seen outsized improvements in their employment situation.

Those younger workers in the 20 to 24 age group will be the next up in household formation as they marry and prepare for larger families. The next larger cohort, the 20-to-34-year-olds, make up about 65% of first-time home buyers. According to Trulia, new household formation is currently proceeding at the fastest pace since 2005. Analysts note that there a million households which could “unbundle,” shedding millennials who had been sheltering with their parents during difficult times.

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Source: Bureau of Labor Statistics

Not only is the employment picture improving for this group at a faster rate than for the workforce as a whole, but they are also feeling better about their future, with sentiment on their future prospects improving faster as well.

These new households seem to be moving into rented properties first. Rental inventories are tight, and total rental remittances increasing.

We view this as a positive sign. These renters will eventually become buyers as their families increase in size and as they pay down student loan debt, so the uptick in household formation bodes well for the future. If this is the beginning of the end of the post-recession suppression of housing demand, the multiplier effect will be notable; the National Association of Homebuilders estimates that in a typical metro area, each single-family home built creates 3.2 local jobs. Each multifamily unit built creates 1.1 local jobs.

Investment implications: An uptick in millennial household formation, driven by an improving employment and wage picture, will have significant knock-on effects for the U.S. economy as new single and multifamily housing units are constructed to accommodate them.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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