The Kids (and Homes) Are All Right



A report soon to be released by Goldman Sachs Group (NYSE: GS) shows that the percentage of adults living with their parents may have peaked. The Financial Times published a chart from the report as well as an excerpt of the note, and the publication reports that a slowly improving labor market and marriage rates were the key drivers behind young adults finally striking out on their own again. Goldman Sachs’s research focuses on 18- to 34-year-olds, otherwise known as Millennials, or the “boomerang generation.”

In separate study, Pew Research found that a record number – 36 percent — of Millennials lived with their parents in 2012. Pew’s definition covered 18- to 31-year-olds, a slightly different demographic than what Goldman Sachs used. However, the record number for 2012 corresponds with a spike on the Goldman Sachs graph.

Pew’s researchers found similar reasons why Millennials returned home as those at Goldman Sachs did. In addition to choosing to marry at a later stage in life and a weak labor market, Pew cited increased college enrollment as a reason for the increase of adults living at home during the recession. This particularly applied to Millennials between the ages of 18 and 24, because they might be living at home while attending college or categorized as living at home even when residing on campus.

One result of young adults living at home was a decline in headship rates. Headship is the term used to denote adults with their own households. By not setting up their own homes and moving back to established households, the housing industry was negatively impacted.

D.R. Horton Inc. (NYSE: DHI) is a company involved in land development as well as home building and sales. Charting its performance can assist in gauging a housing market recovery and the demand for homes in the U.S. As the following graph shows, D.R. Horton stock took a hit during the housing recession.

06-13 DR Horton

The company has since rebounded since 2008 lows, and analysts began changing their positions on D.R. Horton in 2012, upgrading the stock. D.R. Horton released its third-quarter earnings on July 25; pretax profits came in at $205.1 million, an increase of 184 percent over third-quarter results in 2012.

Positive results by companies heavily invested in the housing market corroborate Goldman Sachs’s findings. As new homes are established and headship rates increase, other segments of the economy will also be pushed forward, since furniture, bric-a-brac, kitchenware, and other household goods are all needed for new homes. If a home is also new construction, that aids other aspects of the economy including employment.

The Goldman report does conclude with a warning that ”risks to this continued recovery process include significant slowdowns in immigration into the US and negative shocks in the labor market.” However, if the U.S. is able to withstand such shocks, headship rates will continue to increase, improving the overall economy.

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