Wednesday, July 30, 2014

Failure to launch the boomerang generation

From page C3 | March 28, 2012 |

“What size home are you looking for?” I asked.

“About the same square footage that we just sold but this time we want a two-bedroom home,” she said.

“Why a two-bedroom? You just sold a big five-bedroom home. Isn’t that a big difference?”

“Well it is but we don’t want all the kids thinking about moving back home. Two bedrooms tell the children its okay to come for a visit but don’t plan on staying too long.”

As it turned out, my clients did find a large two-bedroom home and six months after they moved in, so did two of their adult children. One took over the spare bedroom and the other was camping out in the den.

They are called the boomerang generation, adult children who are living at home. According to the U.S. Census, 59 percent of men and 50 percent of women ages 18 to 24 live with or are supported by their parents. The same is true for 19 percent of men and 10 percent of women in ages 25 to 34. Is this a cultural change or have economic conditions forced more adult children to stay at home longer? Perhaps both, but, regardless, the large number of adult children living at home is slowing our economic recovery and hurting the building industry.

One striking feature of our current economic malaise is the well-below historical average number of household formation. Formations averaged 400,000 annually from 2007 through 2010. That was roughly a third of the long-term average which since 1965 has averaged 1.3 million new households per year. More adult children are refusing to leave home or are moving back in with their parents. This economic and social change weakens demand for new homes and apartments and slows economic expansion.

When adult children are living at home they are not buying all the stuff that goes with setting up and maintaining a household. In addition to depriving a landlord out of rent or a seller from a sale, the boomerang kids are not signing up for cable, buying their own appliances, furniture and window coverings. According to Mark Zandi, chief economist at Moody’s Analytics, “Under normal circumstances each time a household is formed it adds about $145,000 to output that year as the spending ripples through the economy.”

A tough job market and a boat load of student loan debt are contributing factors in more young adults moving back in with mom and dad. According to a Pew Research survey, one in four adult children between the ages of 18 and 24 moved back in with their parents over the last three years. Saving money by mooching off mom and dad may be good for the individual but bad for the economy. It is a phenomenon that the famous British economist John Maynard Keynes referred to as the “paradox of thrift.” Saving is good for the individual but en masse can hurt the economy by reducing demand. If everyone tries to save more money during times of recession then aggregate demand will fall and will, in turn, lower total savings in the population because of the decrease in consumption and economic growth.

If adult children living at home is an economic issue then it’s likely only temporary. The improving economy will create jobs which will stimulate household formation back to historical levels. In fact, the pent-up demand of young adults to move out of the nest could eliminate the entire over-supply of homes estimated to be currently at 1.2 million. With fewer homes available, prices would rise and home building would begin. On the other hand, if adult children refuse to leave the nest the phenomenon could be a cultural change.

In past generations, adult children in the U.S. have been quick to leave home. It was an accepted “rite of passage.” Leaving home marked the person’s progress from a dependent child to an adult. Both parents and children looked forward to taking that big step out the front door. In many European cultures, however, adult children living at home are commonly accepted. In Britain, where roughly five out of every 10 men aged between 18 and 30 live with their parents, they are called “KIPPERS” which is short for “kids in parents’ pockets eroding retirement savings.” In Italy, where eight out of 10 men under 30 won’t leave, they are called “mammon” or “mamma’s boys.”  The Japanese call them “parasaito shinguru”or “parasite singles.”

One theory as to why adult children won’t leave home is parents have been too protective by “bubblewarpping” them from all real or imaginary dangers. Subsequently, they are less independent and less self-reliant than their parents.

In his book “Too Safe for Their Own Good,” author Michael Ungar writes “Parents need to find a balance between real and imaginary dangers if their children are to grow into confident human beings who can look after themselves. After all, mommy and daddy won’t be around forever.”

Are adult children living with their parents more than a temporary respite during difficult economic times? If so, the phenomenon will change the size and style of the traditional single-family home. Less household formations will restrain our full economic recovery and the building industry will need to adjust its expectations for new construction. Mutigenerational families all living under the same roof may pose some stressful family dynamics. Perhaps for the good of the country parents should just say no.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his web site





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