Household Formations Have Slowed Considerably

By: | Uncategorized | August 5, 2013 | 0 responses


The Census Bureau recently released second quarter household formation data and the results were disheartening to say the least. After a run-up during 2012, the household formation rate has slowed considerably, dropping from a high of 2 million households formed in March 2012 to 335,000 most recently in June. This formation rate is dangerously close to the post-recession low seen during 2010 and 2011. This is the third consecutive quarter of a falling formation rate, a very poor sign for the single-family housing recovery.

household

Further, the 12-month moving average paints the same grim picture. After reaching a formation rate of 1.9 million in June 2012, the moving average household formation rate has fallen to 772,000, less than half of the household formations seen one year ago.

Along with several other lackluster housing data released recently, this new data puts a giant question mark on the single-family housing recovery. Household formations directly drive housing demand, and as fewer people form new households, demand for housing will suffer. Additionally, without the organic housing demand, the onus of the housing recovery is placed on investor purchases, which drives up home prices, further discouraging would-be homebuyers from forming households and thus purchasing homes. We expect this slowdown in formations to be reflected in home sales for the second half of 2013.

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