A study released Wednesday by the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA) showed that an estimated 1.2 million households were lost from 2005 to 2008, despite the population increase of 3.4 million in the study area. MBA says this decline in households was likely a significant factor to the excess supply of apartments and single-family homes currently on the market.[IMAGE]
""We hear stories about young adults remaining in or returning to the nest after college and of households doubling up,"" said Michael Fratantoni, MBA's VP of research and economics. ""We wanted to go beyond the anecdotes to provide our members with hard numbers on the trends in household formation that will impact demand for both single-family and multifamily properties.""
""The study"":http://www.housingamerica.org/Publications/72429_WhatHappenstoHouseholdFormationinaRecession.pdf, entitled ""What Happens to Household Formation in a Recession,"" analyzes the impact of economic and housing conditions on household formation and how the recent recession has affected Americans' propensity to form new households, mobility trends, and changes in the rate of overcrowding. The report was conducted by Professor Gary Painter of the University of Southern California and sponsored by the ""Research Institute for Housing America."":http://www.housingamerica.org/default.html
""With such a significant drop in households nationwide, it is clear the most recent recession impacted individuals' decisions to move out on their own and caused many Americans to join already formed households,"" Painter said.
Due to data limitations, Painter's analysis had to focus on household formation as of 2008, but he said given the depth of the downturn in 2009 and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all. Painter said his study clearly indicates that household formation will only pick up once the job market stabilizes.
""Given the strong tie between unemployment rates and household formation, household formation will likely return to normal levels by 2012 as unemployment rates decline over the next two years,"" Painter said.
Typically, many new households are renters, but if young adults postpone moving out, some may have the ability to save for a downpayment, causing them to skip the rental stage and move right to homeownership. Painter explained that young adults need not only a paycheck, but also a sense that they have sustainable employment before striking out on their own.
The study found that in a recession, the likelihood that a young adult will form an independent household falls by up to 4 percentage points depending on the age of the person and severity of the changes in unemployment rates. It also found that children whose parents have higher incomes are more likely to remain at home, with this effect largest for youths moving into the rental market. However, children whose parents have higher financial wealth are more likely to form their own new rental households.
While the national homeownership rate has fallen from a peak above 69 percent to slightly more than 67 percent, Painter says this decline may be understating the magnitude of the change when the simultaneous drop in renter household information is taken into account. He said the rental market saw a steeper decline in new households formed than the homeownership market. As a result of this drop, the denominator in the homeownership rate calculation has been reduced, mitigating the decline in homeownership.
In addition, the study found that this recession has caused a dramatic increase--almost five-fold--in the rates of overcrowding, defined as having more than one person per room in the household. This indicates that many families are doubling up in response to the downturn.
Overall, there was a greater impact on the creation of new households among native-born Americans over new immigrant households. The data showed native-born Americans experienced a larger decline in household formation and a larger increase in overcrowding rates than immigrants.
Looking forward, Painter said it will be important to observe a turnaround in homeownership rates before the housing market is likely to stabilize. ""There is no demographic silver bullet that will solve the supply overhang we are seeing in many housing markets around the country,"" he said. ""The housing and mortgage industries will feel the impact of this reduction in the number of households for years to come.""