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Millennials are (finally) moving out on their own

2015 may be the year mom and dad finally get their basement back.

The number of young adults living at home with their parents has leveled off in recent months and is now dropping slightly, according to Goldman Sachs Global Investment Research’s analysis of Department of Commerce and Department of Labor data.

Almost one-quarter of Americans aged 25-to-34 live with their parents or grandparents, according to Pew Research. Today more Millennials live in multigenerational households than people age 85 and older do. Millennials have had plenty of excuses: A weak job market and stagnant wages, the rising cost of college and an increasing load of student debt, not to mention tighter mortgage lending standards.

What’s getting them off the couch now and out into the real world? In a word: Jobs. With the employment picture continuing to improve, Cardiff Garcia of FT’s Alphaville says next year could be the year Millennials move out on their own in more solid numbers. “The labor market for young people has finally started to improve in roughly the last year,” says Garcia. “Of the prime age population, the majority of jobs of the employment pick-up in the last year has gone to the 25 – 34 demographic.”

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Garcia says such an improvement in the labor market and modest gains in wages could help fuel lagging household formation growth. That would give the broader economy a boost, areas like the housing market, construction jobs, and peripheral industries.

The amount of time young adults have been living with their parents may also be a factor in the "moving out" trend. Garcia says, “The earlier cohort of kids, of young adults who stayed at home is starting to age and at some point they start moving out.”

But where they go complicates the situation. Geography will play a role in whether or not Millennials move out en masse. In the desirable markets of New York and San Francisco, rents and home prices are sky high. “Everyone gravitates towards the places where everybody else wants to live,” says Garcia. “And if you don’t have a response from the supply side because of zoning restrictions or things like that it continues to make it…hard to afford.”

Renting may be the best option.  Home ownership remains low among Millennials.  According to Census Bureau data analyzed by real estate site Trulia, the homeownership rate among young adults age 18 – 34 hit a new low of 13.2% earlier this fall.

Jed Kolko, chief economist at Trulia, points to a mismatch right now between the places where Millennials want to live and the places where they can afford to buy homes. “Millennials can afford markets where they don’t live, but they can’t afford many of the markets where they do live,” Kolko writes on his blog. “Many Millennials who hope to buy someday will be priced out of the market where they live now. They’ll face a tough choice: Do they keep renting or move to a cheaper market?”

Either way, just getting the young adults to move out and furnish a place of their own would be a shot in the arm for the economy. “This is generally speaking a positive development,” says Garcia. “I think that if it does happen it will be a welcome boost and one that keeps the recovery sustainable.”

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