The Baby Boomers Are Driving Growth

Baby boomers are the “driving force” of household formation, which is critical for real estate demand, according to a new blog post at the National Association of REALTORS® Economists’ Outlook blog.

The highest gains in household formation have been by 65- to 74-year-olds, who accounted for 860,000 new households alone from the first half of 2014 to first half of 2015, according to Census Bureau data. The 55 to 64 age group comprised the second highest at 391,000, followed by people over 75 years of age who formed 264,000 new households during that time period.

Meanwhile, younger age groups had less. The 20 to 24 age group had negative net household formation numbers of 85,000. The 25- to 34-year-old age group, however, had 159,000 new households during that time.

Young professionals have been slow to form their own households. The share of the population living with parents has risen dramatically over the last few years. For the 25- to 29-year-old age group, the percentage has risen from 10 percent in 1980 to 25 percent by 2013. Also, the share of 25-to 29-year-olds who have never been married has dropped from 70 percent in 1980 to less than 40 percent in 2013.

Source: “Baby Boomers Lead Recent Household Formation,” National Association of REALTORS® Economists’ Outlook blog (Sept. 25, 2015)

“Household Formation” to Outpace Apartment Boom

A big growth in new household formation is expected to drive up housing starts in the new year that will outpace the apartment boom, according to forecasts by Freddie Mac’s Chief Economist Frank Nothaft. 

Nothaft is forecasting a net growth of 1.2 to 1.25 million new households in 2013 that will provide a big boost to housing starts next year. That expected growth also will likely drive down apartment vacancy rates to 10-year lows and outpace the boom in new apartment construction, Nothaft says. 

Unemployment is expected to improve slightly in 2013 and the job and income gains will help jump-start more household formation, according to Nothaft. Also, more adult children who took up residence in their parents’ homes are expected to move out next year, helping to increase household formation.

“The last few months have brought a spate of favorable news on the U.S. housing market with construction up, more home sales, and home-value growth turning positive,” Nothaft says. “This has been a big change from a year ago, when some analysts worried that the looming ‘shadow inventory’ would keep the housing sector mired in economic depression. Instead, the housing market is healing, is contributing positively to GDP and is returning to its traditional role of supporting the economic recovery.” 

Source: “Freddie Mac Economist Sees New Households Outpacing Apartment Boom,” RISMedia (Dec. 15, 2012)

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When Will the Housing Supply Normalize?

The housing supply is expected to normalize in two to four years, Barclays Capital projects, assuming that household formation rates increase to 1.1 million and construction remains slightly above 2011 levels.

Household formation–which is a reflection of population growth and housing affordability–has drastically dropped since 2007, reaching about 300,000 to 500,000 per year. Historically, the rate is about 1.25 million.

Home prices will likely see a 1 percent appreciation this year (that’s after falling 3 to 4 percent through March), Barclays Capital estimates. It is also projecting a 1 percent price appreciation in 2013, followed by 2 percent to 3 percent appreciation levels.

But to reach those goals, the housing supply needs to continue to shrink first. Our region in the Sierra Foothills of Placerville, California is experiencing a low supply in the under $300,000. price range. This is the primary market for first time home buyers and cash investors. So we’re off to a supply, demand race for the spring market?

Source: “Barclays: Housing Supply Could Normalize in 2014,” HousingWire (3/2/12)