“Missing Households” and Other Labels Applicable to the Current Housing Market

06/19/2014 01:10 PM (CST)

friendsDon’t we love all kinds of labels when it comes to the real estate market? We have “distressed homeowners”, “underwater properties”, “boomerang buyers”, “zombie foreclosures” and, now, we’re dealing with “missing households.”

A year ago, the housing market looked like it was finally recovering. Sales and prices were picking up. But then home sales fizzled. Currently, they are down about 7 percent from last spring.

According to this NPR report, a phenomenon called “missing households” is to blame. NPR recently used Census data to track down new household formation. Apparently, there are 2 million “missing households” in the U.S., meaning that fewer people are buying or even renting on their own. Instead, a large number of Americans in their 20s and early 30s are living with family or tripling up with roommates.

The high cost of renting is one of the things that have made life tougher for many millennials.

According to economists, millennials had it more difficult than other generations in terms of weathering the recession. Many young people feel trapped: high demand for rental properties, partially fueled by victims of short sales, foreclosures and bankruptcies looking for a place to live, drove rental prices up. As a result, they are forced to retreat back to their parents’ homes or add more roommates to their already unconventional households.

As a generation that has fewer opportunities to save and poor knowledge of how credit scoring works, many millennials are not prepared to buy either.

This is how we ended up with 2 million "missing households" in the U.S.

In the past few years, economists have said millennials who live with parents or roommates represent pent-up demand. They argue that soon these young people will move out and become first-time homebuyers. This, in turn, creates more jobs and helps the whole economy.

The only problem with this scenario: It hasn't actually happened yet. Home sales have fizzled in part because Americans in their 20s and 30s are choosing not to buy. Only 16 percent of new home sales are to first-time homebuyers.