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Weak Household Formation Hampers Housing

The number of households owning homes rose a scant 32,000 in the second quarter, but the homeownership rate remained at 65.0 percent, the lowest level in 18 years, the ""Census Bureau"":http://www.census.gov/housing/hvs/files/qtr213/q213press.pdf reported Tuesday.

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At the same time, the Census Bureau data showed the number of new household formations dropped dramatically in the first half of the year, an average of about 500,000 new households per month compared with 1.4 million new households per month in 2012.

The homeownership rate peaked at 69.2 percent in the second quarter of 2004. The rate measures the proportion of households owning their primary residence and is computed by dividing the number of household that are occupied by owners by the total number of occupied homes.

The Census Bureau also reported the homeowner vacancy rate fell to 1.9 percent in the second quarter from 2.1 percent in the first quarter. The homeowner vacancy rate is the proportion of the homeowner inventory that is vacant and for sale.

The Census data paints a grim picture for the home sales market, which has already been struggling against mortgage restrictions and weak inventory. The Census report suggests homeownership may have lost its place in the ""American dream"" as a new generation of potential home buyers may have become wary of homeownership as a result of the wave of foreclosures in the last several years.

If the monthly average of new households continues for the rest of the year, it would mark the weakest year for household formation since 2010, when the monthly average was 443,500 new households.

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The number of housing units for sale in the second quarter, Census reported, was 1,460,000--the lowest level since the second quarter of 2005--down from 1,609,000 in the first quarter and from 1,591,000 one year earlier. The report confirmed assertions by the National Association of Realtors of weak inventories. The number of housing units held off the market in the second quarter though was 7,476,000, down from 7,609,000 in the first quarter and from 7,595,000 a year ago.

According to the Census report, there were 74,543,000 owner-occupied homes in the second quarter, up from 74,511,000 in the first quarter but down from 74,660,000 a year ago.

The weak homeownership rate combined with the drops in homes for sale and household formations suggests continued challenges ahead for home sales. At the same time, the profile of homeowners, by age, is changing.

The homeownership rate for older Americans--65 and over--rose in the second quarter to 80.9 percent, the highest level since the third quarter 2012 when it was 81.4 percent. The rate was 80.4 percent in the first quarter.

The higher ownership percentage for that age cohort--typically home sellers--reflects price resistance among homebuyers, historically the 25- to 34-year-old age cohort. The homeownership rate for those 35 or younger slipped 36.7 percent in the second quarter from 36.8 percent in the first. The homeownership rate for those under 35 was as high as 43 percent in Q3 2006.

According to the quarterly report, the number of housing units in the second quarter was 132,754,000, down from 133,082,000 in the first quarter, but up from 132,405,000 one year earlier.

According to the Census Bureau, 18,077,000 units were vacant in the second quarter, down from 18,439,000 in the first quarter and from 18,473,000 a year earlier.

Regionally, the homeownership rate rose only in the Northeast, up to 63.2 percent from 62.5 percent in the first quarter. The homeownership rate fell to 69.4 percent in the Midwest from 70 percent. The rate was flat in the South at 66.5 percent and in the West at 59.4 percent.

_Hear Mark Lieberman Friday on P.O.T.U.S. radio, Sirius-XM 124, at 8:45 am eastern time and at 12:30 pm eastern time._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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