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Household Formations Start 2013 on a Soft Note

The Census Bureau recently released household formations data for the first three months of 2013, and the weakening trend seen at the end of last year has continued. Household formations jumped in late 2011 and early 2012, serving as the first organic demand for single-family housing since the bubble burst and continuing the surge of multifamily demand.

household

There have been 490,000 household formations over the past year as of March, the lowest monthly formation number since 2011. This is a significant cool down from the 2 million households formed in early 2012.

Using the 12-month moving average, the picture is a little brighter but the trend remains the same. After reaching a recent peak of 1.74 million formations last year, formations have simmered to 1.09 million in March.

This drop off in household formations will reduce demand for housing, lowering sales and increasing the time it will take to clear excess inventories. This in turn will delay price appreciation as excess inventory hangs over the market.  Additionally, this will be a drag on multifamily absorption, as less renter households are being formed as well.

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