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Low Rate of Household Formation Hurting Housing Market

not happening (photo: brianteutsch / flickr)

A new report by the US Census shows why it’s going to be so difficult to get a housing recovery going. We already have seen that the 9 million families locked out of the market by virtue of a recent delinquency or foreclosure dampens supply. The up to 16 million families who are underwater have almost no chance at being “step-up” buyers, purchasing a bigger home or a home closer to a new job. The only way to generate demand, then, would be to have a run of first-time homebuyers with good credit, typically young people just getting into the housing market. But the Census report shows that household formation just isn’t happening these days:

This research defines a shared household as a household with at least one resident adult who is not enrolled in school and who is neither the householder, nor the spouse or cohabiting partner of the householder. In spring 2007, there were 19.7 million shared households. By spring 2010, the number of shared households had increased by 11.4 percent, while all households increased by only 1.3 percent (Table 1). In 2010, shared households accounted for 18.7 percent of all households, up from 17.0 percent in 2007.

This is not about the marriage rate rising, it’s about multi-family shared homes, roommates, etc. So the rate of shared households, defined thusly, is going up. And considering the stagnating wages, high unemployment, and lack of purchasing power in the broad middle, this stands to reason. And it will continue to be a problem, even if the banks keep enough homes off the market to constrain industry and lower months-of-supply.

The big stat here is that additional adults living with a relative rose from 2007 to 2010 by 2.4 million, accounting for 68% of the increase in this metric of shared households. That just goes right to affordability. People cannot afford to live on their own, so they move back in with their parents or another relative. Household formation remains low as a result.

I keep hearing that this will break, like a fever, and people will move out of their parents’ homes, perhaps get married and start families, and return to the housing market. But they have to have a job to do that. They have to be unburdened by student debt. What I see is that these millions just add on to the 9 million foreclosed and the 16 million underwater as those locked out of the housing market. That number is starting to look daunting. And without those purchases, and with the threat of more foreclosures in certain regions (like Colorado), it’s hard to predict prices bottoming out.

CommunityThe Bullpen

Low Rate of Household Formation Hurting Housing Market

A new report by the US Census shows why it’s going to be so difficult to get a housing recovery going. We already have seen that the 9 million families locked out of the market by virtue of a recent delinquency or foreclosure dampens supply. The up to 16 million families who are underwater have almost no chance at being “step-up” buyers, purchasing a bigger home or a home closer to a new job. The only way to generate demand, then, would be to have a run of first-time homebuyers with good credit, typically young people just getting into the housing market. But the Census report shows that household formation just isn’t happening these days:

This research defines a shared household as a household with at least one resident adult who is not enrolled in school and who is neither the householder, nor the spouse or cohabiting partner of the householder. In spring 2007, there were 19.7 million shared households. By spring 2010, the number of shared households had increased by 11.4 percent, while all households increased by only 1.3 percent (Table 1). In 2010, shared households accounted for 18.7 percent of all households, up from 17.0 percent in 2007.

This is not about the marriage rate rising, it’s about multi-family shared homes, roommates, etc. So the rate of shared households, defined thusly, is going up. And considering the stagnating wages, high unemployment, and lack of purchasing power in the broad middle, this stands to reason. And it will continue to be a problem, even if the banks keep enough homes off the market to constrain industry and lower months-of-supply.

The big stat here is that additional adults living with a relative rose from 2007 to 2010 by 2.4 million, accounting for 68% of the increase in this metric of shared households. That just goes right to affordability. People cannot afford to live on their own, so they move back in with their parents or another relative. Household formation remains low as a result.

I keep hearing that this will break, like a fever, and people will move out of their parents’ homes, perhaps get married and start families, and return to the housing market. But they have to have a job to do that. They have to be unburdened by student debt. What I see is that these millions just add on to the 9 million foreclosed and the 16 million underwater as those locked out of the housing market. That number is starting to look daunting. And without those purchases, and with the threat of more foreclosures in certain regions (like Colorado), it’s hard to predict prices bottoming out.

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David Dayen

David Dayen