Housing Shortage, Prices Keep Young Adults at Home

By Economic Indicators FOXBusiness

Workers construct a new home in Leyden Rock in Arvada, Colorado, U.S. August 30, 2016. REUTERS/Rick Wilking/File Photo (Copyright Reuters 2016)

The odds are rising that less parents will become empty nesters in the near-term.

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In a new report released Wednesday, “The Large Unmet Demand for Housing”, from the Federal Reserve Bank of Kansas City shows new home construction is falling considerably short of rising demand, which in turn is forcing young adults to stay put instead of moving up and out of their parents’ homes. 

The report blames, “the limited supply of housing available for rent or sale…” as the main culprit keeping household formation weak nationwide. Other contributors include rising rents and rising prices for single family homes. The Federal Reserve Bank of Kansas City says the national level of home prices is, ”…within five percent of its 2006 peak” and speculates that current home prices, factoring in current low interest rates, may be undervalued.  That would normally launch a construction boom. While the bank expects growth in home construction this year and next it still will fall short of demand.  The report says construction, “…has not responded vigorously to increasing prices thus far.”

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One reason construction appears to lag the increase in demand is a shortage of qualified construction workers.  In mid-sized metropolitan areas, the Kansas City Fed says builders, “…are having trouble financing land purchases and construction.”  That coupled with a preference among young Americans to live near urban cores instead of suburbs indicates the demand for single family homes, “…is unlikely to be met anytime soon.” 

Construction of new houses as a share of U.S. households is near its lowest level since 1957.  And, construction of new apartments which has boomed over the past few years is, according to the report, “…centered disproportionately on luxury units too expensive for most young adults.”

All of this contributes to an attitude among renters and homeowners that right now it’s better to stay put than move.

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