Much has been written about the factors original to the American generation of adults currently age 21-39. Many of these factors―student loans, marriage later in life, child bearing later in life, the prior era housing bust and fears that we’d become a renter nation―have dominated investors’ attention. We would like to include one more factor(s) into the mix as we give you an update on the coming boom. Millennials, more than any prior generational group, live in exile. We believe this exile living and hesitancy to put down roots has contributed to the slowness of the coming boom and will contribute to its size and duration.
First, an update on housing was provided by Leslie Norton of Barron’s in an interview with top housing analyst, Ivy Zelman in the June 5th issue:
Barron’s: “April new home sales soared 17%. Where are we in the housing recovery?”
Zelman: “Four years in. The first increase was in 2012. There are multiple years ahead. We are still 35% below a normalized level of starts, and that’s for a single-family. Every cycle is different. This cycle will be elongated, and the slope of the recovery is flatter than what we thought the trajectory would look like when we called the bottom in 2012. Builders have been slower to see the growth. There’s a shortage of shelter. We’re pretty indifferent whether shelter should be owned or rented. We’re just saying there isn’t enough. The U.S. is at a 30-year low of inventory available for sale. We are predicting double-digit housing-starts growth this year, next year, and in 2018.”
We would argue that many Millennials have removed themselves from their hometown and their college town via their employment and the lateness of marriage. This contributes directly to Ivy’s “elongation.” We find it easy to estimate that the current new homebuilding pace of 629,000 units in 2016 will grow to a 1.5 million unit run-rate within five years. This would truly be a boom and could carry the U.S. economy along with it.
Numerous studies show that folks under thirty years of age change jobs much more often than prior generations. The average age to marry has risen above 28 years old, with men at 29 in the mix. BCA Research has taught us that American women who have three children are likely to bear more of them in their thirties than in their twenties. The census bureau just reported a drop-off in teenage pregnancies and a lower rate of birth for women in their twenties. This was offset by sizable growth in pregnancies between 30 and 45 (Janet Jackson not withstanding).
Twelve years ago, the average child was born to a below-average income family. Five years ago, it moved to average. We are quickly moving to child bearing being dominated by above-average income households as many college-educated, two-income couples marry and have babies. You might call it the ‘Kate Middleton and Prince William generation.’
Have there been any historical situations we could reference which are analogous to the present time? In the Old Testament book of Jeremiah in chapter 29, God uses the prophet Jeremiah to tell the people of Israel what to do during their time of exile in Babylon under the rule of King Nebuchadnezzar:
“4Thus says the Lord of hosts, the God of Israel, to all the exiles whom I have sent into exile from Jerusalem to Babylon: 5Build houses and live in them; plant gardens and eat their produce. 6Take wives and have sons and daughters; take wives for your sons, and give your daughters in marriage, that they may bear sons and daughters; multiply there, and do not decrease. 7But seek the welfare of the city where I have sent you into exile, and pray to the Lord on its behalf, for in its welfare you will find your welfare.”
The Israelites were hesitant to put down roots in a foreign land, especially one they didn’t prefer. Today’s millennial group enjoys the heavily populated and expensive cities in which they are recruited, while single, and they have been slow to have children and “build houses.” They have also not been as interested in the welfare of their cities, since they are “exiled” there.