By Nin-Hai Tseng
July 26, 2013

FORTUNE – Until recently, hedge funds and private equity firms drove the U.S. housing market’s recovery, buying a shrinking pool of foreclosed and distressed homes to rent. It seemed like a lucrative investment, given that rents were rising while homeownership fell to record lows.

But as big investors turn into landlords, it’s worth asking if any considered how long it could take before junior finally gets a place of his own.

Rents for single-family homes have now risen slower than property prices. This comes as investors flood the market with homes for lease, but it also comes as fewer young adults — generally a key market for rentals — create homes of their own.

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Throughout the housing recovery, plenty of attention has been paid to the sharp drop in first-time homebuyers, typically couples in their 20s and 30s. Joblessness has kept many from buying houses, but that also suggests fewer are renting, too; many are couch surfing at a friend’s or relative’s, or living with their parents. Even as many aspects of the housing market improve, the recovery in household formation among millennials lags behind improvements we’ve witnessed in home prices and foreclosures.

The share of 18 to 34-year-olds living with their parents rose from about 27.6% before the Great Recession in 2007 to above 31%, where it remains today, according to an analysis by Trulia, a real-estate website. Millennials have contributed to the sharp decline in household formation, which likely will take a while to return to normal.

Up until 2008, about 1.1 million new U.S. households were formed each year, mostly due to population growth. That has declined dramatically; between the first quarter of 2008 to the first quarter of 2011, only 450,000 new households a year were created. Even as the economy improves, household formation hasn’t — only 521,000 households were created between the first quarter of 2012 and the first quarter of 2013.

In all, there are 2.4 million missing households in America, notes Jed Kolko, economist at Trulia. That’s more than two year’s worth of household formation. He attributes a big part of the decline to joblessness. While more young adults have jobs today than a year ago, the share of 18 to 34-year-olds employed hasn’t improved much since the worst days of the Great Recession. In mid-2008, 71% had jobs, but that dropped to a low of 65% in mid-2011. Since then, it has risen to 66.8%.

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It could take years before young adults build enough savings to get their own place, Kolko notes. Indeed, those with jobs are more likely to leave the nest than their jobless peers. But even the share of those with jobs living with their parents is higher in 2013 at 24.6% than before the recession at 22.8%. It’s uncertain why, but the trend might say a lot about stagnant wages and escalating college debt.

Given their living situation today, it’s worth asking how investors could possibly rent all the homes they bought. It’s a similar question Fusion IQ CEO Barry Ritholtz raised recently as firms big and small pour billions into Phoenix real estate: “How the hell can they be making money when there are so many empty houses cooking in the desert sun?”

Perhaps it would be wise to take a closer look at the plight of mooching millennials.

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