Weak Household Formation Hampers Recovery

November 18, 2013

About 1.1 million new households form in a normal year. These new households are created by a number of factors, such as recent graduates moving out on their own, families splitting up, and immigrants coming to the country. 

But ever since the Great Recession, households formations are not keeping pace with historical numbers. The latest Census data shows that about 380,000 new households formed in the last 12 months—a small fraction of the norm.

What’s more, the data shows that the number of young adults living with their parents is moving up. Young adults, saddled with college debt, are facing high rates of unemployment, which is keeping many from moving out on their own. Of 25 to 34 year olds, about 75 percent were employed as of September. 

The new-home industry has certainly felt the constraints in household formation. It’s been operating at about 50 percent of where it was during the housing boom.

But the pent-up demand among young adults could be a big driver in ramping up household formation in the near future. For example, the 1.8 million individuals currently living at home could translate into an additional 590,000 households and about 200,000 additional home owners, according to the National Association of REALTORS®’ Economists Outlook blog

Source: “Housing Recovery Stumbling Block: Weak Household Formation,” The Chicago Tribune (Nov. 15, 2013) and “Missing Households Plague Housing Recovery,” REALTOR(R) Magazine Daily News (Oct. 22, 2013)

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