The increase in adult children living with their parents has raised important questions regarding household formation and its impact on owning, renting, and the demand for new housing construction. The percent of young adults, aged 18 to 34, who are living with their parents has increased from an average of 27 percent between 1990 and 2006 to 31 percent in 2013 (a total of approximately 22 million).1 Because young adults, especially the older ones, traditionally represent a substantial share of first-time homebuyers, their delayed decision to form a household has contributed to a depressed rate of household formation and housing demand. Young adults also have been experiencing higher rates of unemployment and delayed marriages. 2
In the latest National Housing Survey Topic Analysis, Fannie Mae’s Economic and Strategic Research Group examines the reasons why young adult children are living with their parents.3 In this study, we analyze National Housing Survey data based on responses from parents about their young adult children who are living with them. The National Housing Survey interviews adult financial decision makers of a household; therefore all responses are from the parents’ perspective. To provide further insights, we analyzed parents’ responses for two age groups of young adults living with them, 18-22 year olds (“younger adult children”) and 23-34 year olds (“older adult children”).
Financial Concerns Are the Primary Reason
Survey results (see Chart 1) show that financial reasons are the primary response given by parents for why their adult children are not living in a separate home. Parents say by a large margin that the younger (age 18-22) adult children are living with them because “they are saving money while enrolled in school.” Also, given that the vast majority of this younger age group has been reported in our survey as “not currently employed in a paying job” or “employed part-time,” this impedes their ability to live on their own.
When asked about their older adult children (age 23-34), parents’ responses were more diverse. Their top responses include:
- “They do not have enough income to live on their own.”
- “They are not yet married.”
- “They are saving money while enrolled in school.”
Overall, financial concerns, in aggregate, also are the primary reason among the older age group for living at home, even though half of this group is employed full-time.
Most Parents Prefer Adult Children to Live with Them
The results also suggest that parents may play a role in encouraging their adult children to live with them. As Chart 2 shows, 68 percent of parents with adult children living at home responded that they prefer their adult child to continue living in their home.
Interestingly, the survey shows a difference in financial situation attitudes among parents with younger adult children compared to older adult children living at home. A higher share of parents with younger adult children responded that their past personal financial situation has gotten better and/or their future personal financial situation is expected to get better (5 percent and 11 percent higher, respectively) compared to parents with older adult children. The parents with younger adult children also are more often employed full-time, which could be due partially to age differences among the population of parents, though reported rates of retirement are similar.
The analysis also shows significant differences between the attitudes of parents with younger and older adult children regarding the potential for their children to move out of the parental home. As Chart 3 shows, 52 percent of parents with older adult children expect their children to move out in less than 2 years, whereas parents with younger adult children were almost evenly split between less than 2 years (38 percent) and 2 to 5 years (34 percent). For both age groups, the majority of adult children living with parents expect that they will more likely rent than buy a home when they move out of their parents’ house.
Interestingly, the 2012 American Community Survey (ACS) shows for those householders 34 years old and younger that the percentage of those renting was 67 percent and the homeownership rate was 33 percent. When we adjust Fannie Mae’s National Housing Survey results to be more comparable to the ACS results by considering only the rent and buy populations, the data show 66 percent are more likely to rent and 34 percent are more likely to buy for those 34 years old and younger – very similar to the ACS results. This could imply that young adults currently living with their parents may not have a substantial impact on shifting the near-term homeownership rate when they do move out of their parent’s home. It is important to note, however, that a recent National Housing Survey study found that more than 90 percent of young renters said they are likely to buy a home at some point in the future.
Overall, results suggest that a combination of personal financial constraints, age of the adult child, and parental preferences encourage young adults to live with their parents. Given most parents’ preference for the adult children to remain at home and the potential for a mutually beneficial experience, we will see if this becomes a more permanent lifestyle trend that slows household formation even as the economy improves. Given that financial reasons account for the vast majority of parents’ responses for why their young adult children are living with them, it seems likely that these young adult children, especially older young adults, will start to form their own households once they feel confident about their financial situation and future prospects.
To learn more about this study, read our Fannie Mae National Housing Survey Topic Analysis.
Strategic Planning Analyst
Economic & Strategic Research