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Buying

Why Today’s Real Estate Markets Favor Multigenerational Households

Multiple generations under one roof isn’t unheard of, but in today’s market, the concept is on the rise in popularity. Here are the changes we’re seeing as more people opt to live under multi-generational households.

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These are not the best times for first-time homebuyers, especially young ones. Some 19 million millennials who want to buy a home, and have the income and the credit to do so, are still renting. They are missing some of the lowest mortgage rates in recent history because most simply cannot find a house they can afford.

Three factors are driving up the price of starter homes. The first is extraordinary demand from the millennial generation. Second is demand from investors who prefer less expensive homes to convert into rentals. Investors account for about 10-15% of all existing homes sold each month. Finally, home builders, strapped by labor shortages and rising costs of supplies, have been slow to respond to the demand for less-profitable smaller homes, which are less profitable. Planned construction has rebounded since the great recession but remains 38.2% below the pre-recession peak.

Multi-Generation Family Sitting Around Table At Home Enjoying Meal Together

Inventory Shortages Punish Starter Home Buyers

Thirty years ago, half of all homes on the market were smaller and less expensive and by 2018, that percentage had fallen to 23%. New construction of small homes under 1,800 square feet represented just 22% of single-family completions in 2018, down from 32% on average from 1999 to 2011, according to the State of the Nation’s Housing Report. With new home construction unable to meet today’s demand and another group of young buyers approaching home buying age, there’s no indication on the horizon that the starter home shortage will improve anytime soon.

Many millennials are forgoing starter homes altogether. They are waiting longer to buy and finding ways to save for down payments larger enough for a mid-priced property. Supplies of larger, more expensive homes have been in much better shape than starter homes and today’s real estate market conditions reward households that can afford them.

Boom in Multigenerational Living

Multigenerational households are on the rise and millennials are playing a part. In 2016, a record 64 million people, or 20% of the U.S. population, lived with multiple generations under one roof, according to an analysis of census data by Pew Research. Growing racial and ethnic diversity in the U.S. population helps explain some of the rise in multigenerational living. Asian and Hispanic populations overall are growing more rapidly than the white population and those groups are more likely than whites to live in multigenerational family households (two or more generations under the same roof).

In recent years, young adults have been the age group most likely to live in multigenerational households. Today more twenty-somethings are living with their parents than live with a spouse. Some 10.2 million adults aged 25–34 lived with their parents or grandparents in 2017, more than double the 4.8 million from 2000. Young adults without a college degree now are more likely to live with parents than to be married or cohabiting in their own homes, but those with a college degree are more likely to be living with a spouse or partner in their own homes.

Other millennials who want to buy now rather than wait are teaming up with several roommates. These arrangements have increased by 28% over the past decade and are more successful if a written agreement is in place to address issues such as equity, maintenance, improvements, and exiting the arrangement.

More Adults Increase a Household’s Income

Whether in a multigenerational household or roommate arrangement where each adult is a co-owner, the total household income makes it possible to qualify for a mortgage on a much larger and more expensive house and avoid the starter home price tier. One potential problem for several co-signers on a mortgage is the treatment of credit. Lenders will use the lowest credit score of all the co-signers.

Multigenerational arrangements can save money in other ways. Grandparents and older family members can provide childcare while younger adults can care for elderly relatives. Travel costs are reduced, as members don’t have to pay for gas or airfare to visit.  Household tasks and expenses like utilities and upkeep can be shared. Alternative households are one way that first-time homebuyers can address the rising costs and scarcity of starter homes. As even more young adults reach homebuyer age in the near future, multigenerational households and other shared living arrangements may become more popular.

 

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Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.

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