Household Formation and the “Big L”

Household Formation and the “Big L”.

by CalculatedRisk on 5/02/2011 04:19:00 PM

From Bloomberg: New Households Forming at Fastest Rate Since ’07

Millions of young adults like Webb are starting to leave their parents’ homes, creating households at the fastest rate since 2007.

Between 750,000 and 1 million new households will be created in 2011, predict UBS Securities LLC’s Maury Harris and IHS Global Insight’s Patrick Newport. That compares with just 357,000 added in the year ended March 2010, the lowest on record, according to the Census Bureau.

First, the 357,000 number is probably based on the Census Bureau’s HVS (or perhaps the ACS) and those surveys are not designed to track household formation in realtime. However I agree that household formation will probably increase sharply this year.

“On the personal ego thing, you don’t want to be 24 and living in your parents’ house,” said [Jesse Hipp, 24, who graduated from the University of Arkansas in 2009, still lives with his parents in Fayetteville, Arkansas]

“Most guys who live at home beyond some young age walk around with agreat big L on their forehead. It is just not acceptable. As soon as these young adults get a job and keep it for some reasonable period, they are gone. As more young people feel they will be able to keep a job, bingo, they are gone.” [said demographic-trends analyst Peter Francese].

Many people doubled up or moved in to their parents’ basements during the recession, and this is pent up demand for housing – well, once these people find jobs. Note: housing includes both apartments and owner occupied units, and most of these people will rent will they move out.

This reminds us that what we would like to know is 1) the number of excess housing units, 2) the rate of household formation, and 3) the net number of housing units being added to the stock.

As I mentioned on Saturday, we will get a better feel for the number of excess household units this month as the Census bureau releases more Census 2010 data (as of April 1, 2010). We already know the net number of housing units added to the stock will be at or near a record low this year. With a million new households formed this year, the excess supply of vacant housing units will be reduced significantly (but will still be high).

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