Homeownership remains elusive for young adults amid recession

The ongoing recession and pandemic has forced a change of plans for many would-be Millennial and Gen Z homebuyers. Amid these dual catastrophes, plans to buy a home have quickly turned into either renting or just trying to stay afloat as job losses continue to mount.

A study conducted by Marcus & Millichap found 27.7 million 18- to 34-year-olds are now living with parents or relatives as of June 2020. And while that level is dropping, the volume of young adults living at home with parents and grandparents is well above the prior four-year average, now at 25 million.

As a result of these cohorts flocking home, metro areas with a disproportionate share of young adults, including San Francisco, have seen a surge in apartment vacancies. The nationwide core vacancy rate rose to 5.8% by the end of the third quarter of 2020, the highest level since 2000. In California, the rental vacancy rate rose to 6.4% in the third quarter of 2020, according to the U.S. Census Bureau.

While the long-term economic impacts of the recession and pandemic may not yet be knowable, they will surely complicate plans for post-pandemic buyers and renters.

A bleak future

The 2020 recession has forced many young people to postpone or let go of their homebuying dreams entirely. At the beginning of 2020, 11% of renters said they were ready to buy a home this year, including 14% of older Millennials who have long been known to shy away from homebuying.

The main reason for letting go of their dreams? Economic uncertainty and loss of income. Twenty-five percent of U.S. adults say they or someone they know have lost their jobs because of the COVID-19 pandemic. Those hit hardest include young adults between the ages of 18 to 29.

Further, Americans who have experienced either job or wage losses are more than twice as likely as those who have not to:

have trouble paying their bills;
struggle to pay their rent or mortgage;
dip into their savings or retirement; and
borrow money from friends or family.

The staggering job losses created by the pandemic and recession also overshadow a decades’-long problem in California: a dearth of affordable housing. The state’s growing population has created a demand for housing that builders and developers have failed to keep up with. The pandemic and recession have only accelerated this crisis.

New construction came to a screeching halt for several months in early to mid 2020. Multi-family construction is down 4% from a year ago, with single family residential (SFR) starts down 10% from one year earlier. Further, year-to-date (YTD) home sales volume is 6% below 2019 as of September 2020.

The lack of home sales volume has led to a seller’s market, leaving buyers to overpay significantly for the homes they purchase. This has made it even harder for Gen Z to make their debut in the housing market amid tough competition.

The coming months will be critical for the younger generations looking to buy. As construction is primed to boom over the next few years and lawmakers rifle through their political toolbelts, the Gen Z and Millennial generations will need to wait — and strike when the iron is hot.

Likewise, agents need to be ready when these long-sought demographics finally take the plunge into homeownership.