Economists fret as young adults seem unwilling to fly coop

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Bur­dened by $85,000 in col­lege debt, at­tor­ney Bobby Walt­man lives with his mom and grand­mother in a three-bed­room house in Hun­ting­ton Beach, Calif.

Past fru­gal­ity led the 29-year-old to live in a van parked at the beach, a one-room ca­sita be­hind a Santa Ana, Calif., house and a tent in Alaska. Now, he’s count­ing the days un­til his fi­nances are sound enough to af­ford a home of his own.

“I’ve had this plan to move out for a while, and it just keeps get­ting post­poned,” said Mr. Walt­man, who works for a New­port Beach, Calif., per­sonal in­jury firm. “I’m work­ing at a re­ally good firm and I’m still liv­ing at home, and I fig­ure it’s time I move on. [But] it’s hard to take on a mort­gage with law school debt.”

Mr. Walt­man may be symp­tom­atic of a prob­lem that’s still plagu­ing the hous­ing mar­ket — and, to some ex­tent, the econ­omy as a whole. The re­ces­sion forced mil­lions to move in with par­ents and rel­a­tives, or de­lay leav­ing, and to dou­ble up with room­mates.

Not only did those peo­ple put off buy­ing or rent­ing homes of their own, but the im­pact has rip­pled through the econ­omy in the form of re­duced de­mand for fur­nish­ings, ap­pli­ances and home and gar­den sup­plies.

Although job growth has re­turned and the hous­ing mar­ket has turned a cor­ner, some econ­o­mists worry that not enough young peo­ple are leav­ing the nest.

Whether it’s be­cause of stu­dent loans, credit card debt, a fore­clo­sure hang­over or a need to save for a mort­gage, “house­hold for­ma­tion” has yet to get any­where near pre-re­ces­sion lev­els.

At a time when in­ves­tors are buy­ing fewer homes, the slow pace of house­hold for­ma­tion means fewer first-time buy­ers tak­ing up that slack, which could limit the hous­ing mar­ket go­ing for­ward.

“Low house­hold for­ma­tion dur­ing the re­ces­sion meant weaker de­mand for hous­ing, which held back con­struc­tion,” said Jed Kolko, Trulia’s chief econ­o­mist.

Fig­ures from the U.S. Cen­sus Bureau high­light the prob­lem.

While the na­tion av­er­aged nearly 1.2 mil­lion new house­holds a year in the past five de­cades, that num­ber fell to about 650,000 an­nu­ally in the past five years, cen­sus fig­ures show. Last year, 160,000 new house­holds were cre­ated.

“Dur­ing this past re­ces­sion, house­hold for­ma­tion re­ally got af­fected neg­a­tively be­cause some of these kids lost their jobs and moved back with their par­ents, or they cou­pled up,” said Chap­man Univer­sity econ­o­mist Es­mael Adibi.

But Mr. Adibi noted that some peo­ple — like his neigh­bor’s 26- and 29-year-old chil­dren — still are liv­ing with their par­ents long af­ter get­ting re­hired.

“You need more than job cre­ation,” he said. “You need job se­cu­rity.”

Econ­o­mists note that de­mo­graph­ics and mi­gra­tion also af­fect house­hold for­ma­tion rates.

Tim and Jenny Haagen spent 2 1/​2 years liv­ing in Ms. Haagen’s old bed­room at her par­ents’ home in Ana­heim Hills, Calif., af­ter they both lost their jobs in May 2010.

“The op­tion was ei­ther to stay in an apart­ment and bleed dol­lars out of sav­ings or move in with her par­ents and save money not only for our wed­ding but for a house,” said Mr. Haagen, 34, a land plan­ner. “Our only space was that 12-by-11-foot bed­room. It was our sanc­tu­ary.”

Ms. Haagen, 32, an el­e­men­tary school teacher, soon found work as di­rec­tor of stu­dent re­sources at Bran­don Univer­sity, but at a pay cut. Mr. Haagen found a new job within six months.

Still, they con­tin­ued to live with Ms. Haagen’s par­ents for two more years.

“It was ac­tu­ally not bad. They gave us our own space,” Ms. Haagen said. “They were very open to hav­ing us there. They wanted us to save money.”

The ar­range­ment made it pos­si­ble for the pair to get mar­ried in Maui in June 2011. In Jan­u­ary 2013, they closed es­crow on a three-bed­room, two-level condo in Tustin, Calif. They ex­pect to have their first baby in Au­gust.

“We were able to save money,” said Mr. Haagen. “We got mar­ried in Hawaii, and we were only able to do that be­cause we were liv­ing at home.”

A Na­tional As­so­ci­a­tion of Home Build­ers study re­leased last month found that the share of 25- to 34-year-olds liv­ing with their par­ents in­creased to 19 per­cent in 2012, from around 12 per­cent in 1990 through 2005.

Those “older young adults” usu­ally ac­count for about half of first-time home buy­ers, the NAHB said.

Mr. Kolko de­ter­mined that there are 2.4 mil­lion “miss­ing” house­holds in a study that took pop­u­la­tion by age into ac­count. Most of those, he wrote, “are young peo­ple who aren’t head­ing up their own house­holds. In­stead, they’re liv­ing with their par­ents.”

When house­hold for­ma­tion picks up, Mr. Kolko told the Orange County Reg­is­ter, many of these new house­holds will be young adults mov­ing out of their par­ents’ homes or room­mate sit­u­a­tions.

In a cu­ri­ous side note, an­other facet of the eco­nomic re­cov­ery — a ris­ing di­vorce rate — pro­vides a coun­ter­weight to the drag of stay-at-home youth. Cou­ples had put off split­ting be­cause they couldn’t af­ford to when jobs were scarce and home eq­uity and stock val­ues were de­pressed. After drop­ping stead­ily from 2006 through 2009, U.S. di­vorces changed course and started to climb in 2010, ac­cord­ing to the Na­tional Center for Health Statis­tics. With each di­vorce, a new house­hold is cre­ated.

Mr. Walt­man, the at­tor­ney, said many of his friends still live with their par­ents, too.

“When many of your friends are liv­ing at home, it’s hard to ra­tio­nal­ize mov­ing out,” he said. “I love to travel. I love eat­ing good food. I love to go to con­certs and to go out. It’s just eas­ier to do the things I love when I’m not spend­ing money on rent.”

Be­sides, he added, “Mom’s cook­ing is still the best.”

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