Although the job market improved significantly in 2014, that hasn’t translated into a much stronger housing market.
More than 2.95 million jobs were added last year, the biggest job creation since 1999, pushing the unemployment rate down to 5.6 percent. The housing market has also seen some continued gains. The foreclosure rate has gone down and home prices have climbed, helping those at the higher end of the market. Overall, though, not many people are buying homes, certainly not young adults, a key age group the can bolster the demand for housing as young people strike out on their own or form new households.
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“In this recovery, the virtuous cycle between jobs and housing has generally been weak,” Jed Kolko, chief economist at Trulia, said in a report Friday.
Among young adults (25-34), which experts consider the prime age group for housing demand, employment was at 76.4 percent in December, up from 75.5 percent a year ago and the highest level since the end of 2008. But this is still relatively low.
“Keep in mind that’s only halfway back to normal,” Kolko noted, adding that before the bubble, the employment-population ratio for the 25-to-34 year old group hovered in the 78 to 80 percent range. The lingering economic uncertainty can be seen in the housing market where only 43.4 percent of college-educated millennials own a home, according to a recent survey by loan marketplace LendingTree.
That survey found that more than two thirds of the 24-to-35 year olds surveyed said that they felt they needed a higher salary or income before they could buy a home. A third said they wanted to move to the area of their choice before buying, while nearly three in 10 said they wanted to pay off their student loans before taking on a mortgage. More than a quarter said they wanted to travel or do other things first.
Those totals add up to well over 100 percent, meaning that many millennials have multiple reasons for not taking the plunge into home ownership, but the desire for stronger financial footing comes across clearly.
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This helps explain why housing hasn’t recovered right along with the job market. Most Americans still aren’t making enough money to afford a home, as income growth has lagged. Average hourly earnings across all age groups climbed 1.7 percent in 2014, according to data from the Bureau of Labor Statistics. Young people are also still plagued with high levels of student debt they have to pay back. And for the most part they can’t afford expensive homes in the urban areas they chose to live.
From a social standpoint, young Americans also just aren’t getting married and having children as early and at the same rate as their parents did.
“Young adults are more likely today to pursue post-secondary education, to relocate to a new area for employment, and to live with partners before marrying, all of which combines to delay the trip down the aisle,” according to a recent blog post at Housing Perspectives, a publication of The Harvard Joint Center for Housing Studies. Even so, author Rachel Bogardus Drew argued, declining marriage rates and the fact that Americans are waiting longer to wed may be overstated as a factor behind weak housing demand.
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“The most important factors in recent declines in homeownership rates,” she wrote, “are the performances of the housing market and economy, which determine whether households of all types are able to purchase homes. Stagnant incomes and constrained credit have had greater impacts on homeownership rates since the end of the housing boom than long-term demographic changes, and will likely continue to drive homeownership trends in the near future.”
In other words, for the housing market to truly get healthy, Americans still need more jobs and more money.
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