StratoDem Analytics Forecast Scenarios: Prime Renter Household Growth in a Recession

March 18, 2020

Change in growth rate, households age 25 to 39 with at least $100,000 in household income, baseline versus recession scenario

Change in growth rate between baseline and recession forecasts from 2020 to 2023 for households age 25 to 39 with $100,000+ household income.
Source: StratoDem Analytics

Key Points

StratoDem Analytics has developed scenarios around its baseline nowcasts and forecasts to understand upside and downside risk to the outlook. This introductory analysis is the first of a series on economic and demographic impacts of a 2020 US recession, and examines the sensitivity to recessions of growth in prime renter (age 25 to 39) households:

  • Sunbelt markets with typically strong in-migration of prime renters are among those most negatively impacted in the recession scenario.
  • Naples, FL and Las Vegas have the largest growth rate decline in the recession scenario versus the baseline, while Washington DC is the most resilient large metro.
  • On a cumulative basis, three-year growth of households age 25 to 39 with income of $50,000 or more roughly halves from a 6.1% metro average in the 2020 to 2023 baseline forecast to 3.2% in the recession scenario.
  • Three-year growth of households age 25 to 39 with $100,000 or more of household income more than halves from an 8.6% average across metros in the baseline to a 4.1% average in the recession scenario.

Background

StratoDem Analytics sensitivity analysis captures the relative economic and demographic growth performance of metros and counties to the US over the business cycle and applies the results to shift the outlook for upside and recession scenarios.

This introductory analysis examines the sensitivity to a recession of growth in prime renter (age 25 to 39) households. The Coronavirus COVID-19 pandemic has driven a sharp reduction in economic activity, which increases downside risk to the baseline forecast. Impacts on young adult household growth forecasts are driven by three main components:

  1. Negative impacts on net migration rates for many markets, as economic conditions deteriorate and moving rates decline across the US
  2. Declining income growth, as the labor market weakens
  3. Slower household formation due to economic uncertainty

In addition, changes in economic conditions are not yet reflected in the government statistics. We expect the baseline outlook and scenarios to continue to shift downward as new data becomes available.

Income-qualified young adult household growth expected to halve on average during downturn

The map below illustrates the baseline-to-recession scenario forecast shift by metro for prime renter households with $50,000 or more in household income. Darker red indicates steeper declines in growth outlook for the household segment.

Change in growth rate, households age 25 to 39 with at least $50,000 in household income, baseline versus recession scenario

Change in growth rate between baseline and recession forecasts from 2020 to 2023 for households age 25 to 39 with $50,000+ household income.
Source: StratoDem Analytics

For households age 25 to 29 with $50,000 or more in household income:

  • The household count across US metros is forecast to expand by 2.0% per year on average from 2020 to 2023 in the StratoDem Analytics baseline. The recession scenario average is nearly 100 basis points (bps) lower per year, at 1.1%. On a cumulative basis, three-year growth for this age and income segment shifts from a 6.1% metro average in the baseline to 3.2% in the recession scenario.
  • In 15 metros, this household segment is forecast to experience cumulative declines of 1.0% or more using the 2020 to 2023 recession scenario. This list includes large, diverse markets, such as Chicago and Atlanta (both at -1.5%), and tourist destinations, such as New Orleans (-2.4%) and Las Vegas (-4.6%).
  • There are 15 metros with cumulative downward growth rate shifts of 7% or more between the baseline and downside scenarios for prime renter household growth. Las Vegas (from 6.7% to -4.6%) is also in this group with several Florida markets, such as Naples, West Palm Beach, and Fort Myers. Sunbelt markets with typically strong in-migration of prime renters — Charlotte, Atlanta, and Phoenix — are in the group most negatively impacted in the recession scenario.

Higher-income young adult household growth expected to more than halve on average during downturn

The map below illustrates the baseline-to-recession scenario forecast shift by metro for prime renter households with higher income — $100,000 or more in household income. Darker red again indicates steeper declines in growth outlook for the household segment.

Change in growth rate, households age 25 to 39 with at least $100,000 in household income, baseline versus recession scenario

Change in growth rate between baseline and recession forecasts from 2020 to 2023 for households age 25 to 39 with $100,000+ household income.
Source: StratoDem Analytics

For households age 25 to 39 with $100,000 or more in household income:

  • The household count across US metros is forecast to expand by 2.9% per year on average from 2020 to 2023 in the StratoDem Analytics baseline outlook. The recession scenario average is 150 bps lower per year, at 1.4%. On a cumulative basis, three-year growth for this age and income segment shifts from an 8.6% metro average in the baseline to 4.1% in the recession scenario.
  • Naples, FL and Las Vegas have both the steepest cumulative 2020 to 2023 declines in these households in the recession scenario and the largest difference between growth rates in the baseline and forecast scenarios. The Naples baseline forecast is for 3.8% average annual growth in this segment, compared to a 2.9% decline in a recession. For Las Vegas, the baseline is 3.0% per year, compared to a 2.7% recession scenario decline.
  • Other markets are more insulated to recession risk. Among large metros, Washington DC is most resilient with a 4.9% cumulative baseline increase in households age 25 to 39 over the next three years, compared to 3.9% in the recession scenario. Smaller metros with a large college and/or university presence, such as Lubbock, TX and Clarksville, TN, are likely to experience continued expansion in these households during a recession.

Conclusion

StratoDem Analytics will continue to monitor economic conditions and adjust model forecasts accordingly. Future posts in this series will cover impacts on other market segments and focus on the most volatile and most resilient markets.

Read our next post on impacts on seniors housing →

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