For millions of young adults who make up the largest and best-educated generation in American history, coming of age in the wake of the Great Recession has been particularly painful.
With jobs and opportunities scarce, many were forced to return to school or take refuge by moving back in with their parents. The idea of buying a place of their own seemed impossible.
But the last three years of recovery and job growth have raised hopes that millennials, adults under 35 years old, will soon be crowding open houses and kicking the slow-moving home-building industry into higher gear. A resurgence of residential construction would provide a big lift at a time when the recovery has lost momentum because of economic turmoil abroad.
Trouble is, the housing market itself faces powerful head winds. Changes in demographics and in the industry have held back demand and supply. Neither is likely to be unleashed any time soon.
Developers have been catering more and more to affluent baby boomers, building larger and more expensive dwellings, which makes buying a first home even more difficult for young adults.
Surveys by the National Assn. of Home Builders show that less than 20% of new construction in recent years has been for entry-level properties. Before the recession, that share typically hovered around 30%. More than half of single-family houses sold in recent years have been 2,400 square feet or larger, compared with about 40% a decade ago.
"This is the first time in the supply history of housing where, for whatever reason, a giant new generation is not being served," said G.U. Krueger, a Los Angeles housing economist who does research for CalPERS' advisors and other investors. "To me, it's incomprehensible."
Whether the lack of supply is hampering demand, or the other way around, isn't clear. But millennial-generation home buyers have not emerged in expected numbers, in part because they are staying single or getting married and having children later in life.
That trend has been building for decades: The share of 18- to 34-year-olds who are married and with kids has fallen steadily to 20% from almost 50% in 1970. That means fewer people feel compelled to go out on their own or move out of apartments they share with friends and other roommates.
For whatever reason, millennials are also staying in their childhood bedrooms longer. From 2000 to 2005, the share of young adults living with parents remained at about 27%. Then it started to rise, propelled by the economic downturn that began in 2007. But to the surprise of many analysts as well as parents, that share has continued to tick higher, climbing to 31.5% in 2015, a full six years after the end of the Great Recession.
The same story holds for older members of the generation, those 25 to 34, according to an analysis by Jed Kolko, an economist formerly with Trulia, the online real estate business.
"Since young people haven't started moving out of their parents' homes yet, a boom in millennial homeownership still looks years away," he said.
By sheer numbers, the 75 million members of the millennial generation overtook baby boomers last year. But the post-War World II generation is still driving new household formation and the housing market. That, Kolko said, accounts for the relatively low share of first-time home buyers — a key segment that helps fuel the entire market.
Historically, 4 of 10 houses sold went to first-time buyers, but that is closer to 30% today. That percentage is even lower for the new-home market.
Experts who have studied the buying patterns of young adults say their absence from the home-buying market does not mean a lack of interest. Although the housing bust in the last decade made almost everyone more wary about owning real estate, surveys suggest that aspirations for homeownership among young adults today are similar to prior generations, said Jonathan Smoke, chief economist at Realtor.com.
Instead, high levels of student debt may be hurting home purchases, according to researchers at the Federal Reserve. That may be true even though younger adults aren't as strapped financially as a few years ago. The unemployment rate for 24- to 34-year-olds has come down from 9% in early 2012 to 5.1% — similar to the average for all ages. Many young adults, more tech-savvy than most, have landed jobs in high-paying, new-economy businesses. Financing, although still a little restrictive, is more available. And mortgage interest rates have slid back to near-record lows, averaging 3.6% for a 30-year loan this week, amid global economic turbulence.
"It's not a problem of the millennials," said Krueger, the Los Angeles economist. "It's the kind of product they're building. It's a little like GM giving up on economy cars and focusing on the high end."
Home builders say they haven't given up on young adults and other entry-level buyers. But they point to a host of factors that they say have made construction of higher-end properties less risky and more profitable.
Greg Ugalde, president of T&M Building Co., one of Connecticut's largest home builders, said regulations and inspections involving permits, utilities and other preparations have not only slowed the process but added to the sticker price of homes — an average of $30,000 to $50,000 for his properties.
Acquiring large parcels, especially in urban areas where many young adults prefer to live, has also become harder, he said. Material costs and construction labor shortages have aggravated matters.
So when builders have a choice between putting up five larger dwellings or 10 starter homes on a plot of land, they will generally say, ''I better do these five and come in with safer costs," said Ugalde, also a vice chairman of the board at the National Assn. of Home Builders.
The association is forecasting 1.25 million housing starts this year. That's up from 1.1 million units last year, but well below the levels of the late 1960s and '70s when baby boomers were coming into the market. Moreover, although historically 4 of 5 housing starts have been single-family houses, in recent years that has dropped to 2 out of 3 as builders have found it more profitable to build apartments, especially higher-end ones.
Aging baby boomers are driving demand for apartments, and rents have risen sharply. Those rent increases ultimately could spur more younger Americans to become homeowners, many analysts think.
At the same time, it's not clear that there will be enough affordable houses to meet young people's needs. Seniors are living together longer and increasingly delaying downsizing, said Jordan Rappaport, a senior economist at the Federal Reserve Bank of Kansas City. That could slow the apartment market and also free up fewer houses in suburbs for sale for younger families.
Smoke of Realtor.com says his surveys show that the No. 1 hindrance for potential young home buyers has to do with lack of affordable dwellings for sale. And he doesn't see that picture changing any time soon.
"Builders have been profitable and they are reluctant to go to lower price points," he said. "The cost of land, regulatory environment and urban locations make it more difficult today. ... The deck is stacked against significant growth in that area. If supply is not there, neither will demand be."