Back in 2012, the bullish thesis for US housing (the one everyone was hoping for, instead of the fake housing "recovery" driven by the parking of dirty foreign oligarch money in NYC triplexes aka the new Swiss bank account, the private equity distressed rental property bid, and bank subsidies courtesy of the delay in the foreclosure pipeline) was that all those millions of young Americans aged 18-34 would finally move out of their parents' houses and start households of their own.
We mocked the idea for one simple reason: those very Millennials, who as everyone now knows can't find any well paying jobs and have zero job security and on whose back the housing recovery was supposed to take place, couldn't afford rent let along to buy a house, and as such would be stuck living in their parents' basements well into their 30's, if not 40's, and why not forever.
Three years after 2012, Goldman has finally admitted that all the talk about a major exodus of your Americans from parental houses and into the harsh crony capitalist world, was nothing but hot air.
As the chart below shows, the share of 18-34-year-olds living with their parents has never been higher:
[15]
The Share of 18-34 Year Olds Living with Parents is 4 pp Higher than Historical Averages
This is how Goldman's economist team, which three years ago was among the biggest proponents of the now completely debunked "outward migration" thesis, tries to unveil this all too unpleasant finding:
The share of young people living with their parents increased 4 percentage points (or 3 million individuals) from 2006 to 2012 and has not declined recently despite a much better job market.
Funny how they snuck that part about a "much better job market." Dear crack Goldman economic team: here is where your "much better job market" comes from [16].
[17]
And since the ivory towers of your 200 West headquarters do not allow you to visit the world of the mere mortals, let us clue you in on a big secret: one can't buy - or rent - anything on minimum wage, the same wages which the "booming" sectors of the US job market are getting. In fact, it is precisely due to the abysmal jobs market for young people (those 55 and over have nothing to worry about [18]) which, together with millions of young Americans raking in tens of thousands of dollars in unrepayable college loans, is precisely what is forcing so many young men and women to pay rent to their mom and dad.
Ok, but this is Goldman, surely it won't simply admit it was wrong and move on? Of course not. It will instead create the biggest straw man we have ever seen. To wit:
The share of young adults living with their parents has risen about 4 percentage points (or 3 million individuals) since house prices peaked in 2006. The share of “children in the basement” has not come down recently despite significant improvements seen in the job market (Exhibit 1). The higher youth at home rate has depressed household formation and housing demand. In today’s note we take an international perspective on the drivers and outlook for young adults living with their parents.
In other words, yes - it's bad... But if one looks at Europe, hey - it's actually great! No really:
We use Eurostat and US Census data to compare the rates of children living with parents in the United States and Western Europe. Exhibit 2 shows that there are large differences across countries in the share of young adults living with their parents. For instance, fewer than 20% of Finnish young adults live with their parents while more than 55% of their Italian counterparts do. The US share of youth living with parents is still relatively low in the international context. Among the 19 developed economies, only young adults from Finland, France, the United Kingdom or the Netherlands are less likely to live with their parents than young adults in the United States.
[19]
The US Share of Youth Living with Parents is Relatively Low
from a Global Perspective: Goldman Sachs
In other words, when it comes to the US, it has never been worse, but don't despair - at leas the US is not Italy where 60% of young adults spend every night with their parents. Yes, this is what now passes as Goldman economic analysis.
But maybe, just maybe, if one ignores the structural and cyclical factors inherent to every other culture - something which makes any comparative analysis absolutely idiotic - the fact that the US rate is soaring has something to do with the abysmal and quite full of slack US labor market.
Not at all, claims Goldman, which was wrong about everything so far, but is confident it will get this right.
Consistent with our earlier work, a decomposition analysis suggests that underemployment alone cannot account for the increase in the rising living with parents share post-crisis. For example, Exhibit 5 shows that about ¾ of the rise in the share of 25-34 year olds living with parents can be explained by the higher stay at home rate among the underemployed. How much of the difference between pre- and post-crisis is cyclical vs. structural is difficult to say. In the past, we have found compelling evidence for cyclical factors. However, if cultural factors play an important role—as suggested by the international evidence—cyclical upturns could turn into structural shifts if living with parents becomes more socially acceptable over time.
The Rise in the Share of Underemployed Living with Parents
Explains ¾ of the Aggregate Rise in the Share Living with Parents
In other words, please ignore the fundamental error in our hypothesis because soon it will be cool to live with your parents. "Just look at Italy." This, again, is what passes for "analysis."
Finally, considering that the exodus of young Americans from the safe (and rent-free) cocoon of a parental basement and into the harsh reality of the US housing market is one of Goldman's top catalysts for a bullish bet on US housing, does the Goldman economic team retract said outlook on this admission that it was just a little confused when making predictions which have now been exposed as a gaping error of judgment? Absolutely not:
If most of the young adults currently living with their parents do not move out anytime soon, does it threaten our optimistic outlook for homebuilding? Not really. As we explained before, population growth alone is likely to contribute about 1 million households per year over the next few years. Population aging may add another 100k households per year as older individuals are more likely to live independently than younger individuals. Therefore, our baseline forecast of 1.1-1.2 million household formations—which should lead housing starts to 1.4-1.5 million assuming 300k annual demolitions—does not depend on many young adults moving out of their parents’ homes.
So Goldman was wrong about about the whole "young people exiting basements" theory, but is confident this is not an issue because population growth - i.e., more young people ending up in their parents' basements - and of course tens of thousands of Syrian refugees to add to household growth, will fix the first error by adding even more errors to it. Sheer analytical brilliance.
And we wondered where China got the just as brilliant idea to fix its housing market by forcefully uprooting 100 million farmers [20]and transplanting them into China's ghost cities, a plan which is brilliant... until one realizes that those 100 million farmers will promptly start a revolution once they find no jobs waiting for them in their brand new centrally-planned experiment habitat. Maybe they hired a Goldman consultant on retainer.
At least there is no risk of US Millennials starting anything ever, let alone a revolution: America's biggest generation is far too busy looking at its iSomething.
