Last week two charts drew my attention to a trend that could prove hugely profitable.

As it turns out, a large number of adults are living at home with their parents right now. In fact, according to the chart below, roughly 31% of Americans between the ages of 18 and 34 live with their parents.

housing-trends

Source: Business Insider

Charts only illustrate a set of data. In order for them to be useful in our investment decisions we have to make certain assumptions based on other things we know.

In this case, we can assume that the sharp increase in 18-34 year olds living with their parents was brought on by the financial crisis. I am comfortable with this assumption because from 1986 to 2008 the number people in this age group who lived with their parents held steady between 27% and 28%.

It was at this point in the depths of the financial crisis that the pattern changed. The number of 18-34 year olds living at home rose to 32% over only four years.

After topping out around 32% in 2012, this trend has started to reverse. I’m assuming that this reversal has been made possible by the improving economy. Now let’s assume that, as the economy continues to improve, this metric will return to 1986-2008 levels.

If that is true, 4% of the people in this age group will enter the housing market over the next couple of years. How many people is that?

According to the U.S. Census Bureau, there were 63 million Americans ages 20-34 in 2012. Though not a perfect match with the chart’s 18-34 age group, this represents the closest comparison to that age group using census data.

Based on the assumptions described above, I believe that an additional 2.5 million individuals will enter the housing market in the next few years.

These 2.5 million individuals will, for the most part, be moving out of their parent’s house for the first time. As such, I believe this group will likely seek multi-family homes and apartments rather than single-family homes.

A second chart solidifies the case that there is significant pent up demand for residential housing.

housing-trends

Soure: Business Insider

The chart above shows that there are now more people over age 16 per household than there have been for approximately 40 years. This housing trend is clear to anyone looking at this chart. But what does it mean?

I would argue that this is another example of housing trends that are directly tied to the economy. Note that in 2000 – as the Dotcom bubble was bursting – this metric spiked higher. It remained pretty constant until the housing market started to sour.

If this metric returns to 2.075 people per household, the result would be 4 to 5 million new households. That is the definition of pent up housing demand.

The first chart points to pent up demand for a specific kind of housing, apartment and multifamily homes. The second chart points to general pent up demand for housing.

Even without all of the assumptions that I made above, these two charts point to massive demand for housing that is just waiting for a catalyst. With an improving economy and the undeniable fact that living with your parents is awful, I fully expect a return to previous levels. That means that this pent up demand should drive the housing market higher in the coming years.

Want to profit from this trend? Tomorrow I’ll share investments that will benefit from these patterns.

Is this happening in your neighborhood?

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Published by Wyatt Investment Research at