They’re back…
During March and April 2020, 2.7 million young adults moved in with parents or grandparents, according to Zillow. The spike in 18-25-year-olds — members of Generation (Gen) Z — moving home translates to a 10% increase in young adults living with relatives over a year earlier, the highest level on record.
Much of this number was necessitated by colleges closing dormitories to head off the spike in coronavirus (COVID-19) cases this spring. But this only accounts for a small share of the total number of young people moving back in with family. For example, the typical seasonal fluctuation that occurs when students return home every summer sees an increase of roughly two percentage points moving home, compared to the ten-percentage point increase this spring.
The vast majority of Gen Z-ers who don’t typically live at home are renters. Thus, the sudden flight of this demographic will lead to a rise in rental vacancies and a decrease in rental demand. This is of particular concern for landlords, who are already experiencing a hard year, unable to collect rent from those impacted by COVID-19, on top of adjusting to the new Tenant Protection Act (TPA) rules enacted in California.
Didn’t this happen last decade?
Gen Z is currently experiencing a similar phenomenon to that which stunted the economic growth of Gen Y just a decade ago.
Following the 2008 Great Recession and elongated recovery, Gen Y was dubbed the boomerang generation, as they moved back home in huge numbers. In 2012, four years after the outset of the recession, 30% of parents with adult children reported their children were still living at home with them.
The financial shocks of 2008, and the long recovery that followed, delayed Gen Y’s entry into the workforce and homeownership. Even today, Gen Y owns homes at lower rates than prior generations. As a result, this generation continues to see lower lifetime earnings and less wealth overall — bad for the housing market, which ultimately relies on the ability of end users to become homebuyers.
Will the same be said of Gen Z?
The extent of the decline in Gen Z’s housing prospects largely depends on how long this economic moment lasts.
Optimistic forecasters expect the economy to bounce back with a COVID-19 vaccine, possibly even sooner as the economy starts rolling again.
However, with history in mind, first tuesday tends to be more realistic. Here in California, May 2020 home sales volume was down 39% from a year earlier. This amounts to a loss of over 19,000 home sales in just one month of sales activity. May’s losses essentially translate to a 39% pay cut for active real estate agents.
Other factors like tenants’ ability to make rent and home prices have yet to fall. But, given the state’s rapid and significant job losses in 2020, they won’t be far behind the drop in home sales volume.
While the pandemic is new, the situation in 2020 is still very much like 2008. The economy was already on track for a recession heading into this year. Add to that our sudden and debilitating job losses and you have the recipe for not just a recession, but a major one — one that won’t be solved by a vaccine alone.
Gen Z has some bumpy years ahead. Assuming they can be re-hired or resume their studies in the coming year, the economy has been decimated. Their early careers will undoubtedly take a hit. Therefore, it may very well take the next decade of economic recovery before Gen Z is at the place where Gen Y has finally found themselves today after the Great Recession — finally able to take on homeownership.
