Household Formations Continue to Rise, Benefiting the Apartment Sector
By Chris Muoio, Quantitative Strategist, Auction.com Research
The U.S. multifamily market has been on a tear, as the combination of eroding homeownership and rising household formations have fueled robust absorption. This has resulted in very low vacancies and high (and rising) rents, because supply has been unable to keep pace with demand on a national level. The boom times for the sector are set to continue, as today’s data on household formations and homeownership rate shows both trends are continuing. Household formations continued their ascent, but a record-low homeownership rate suggests the multifamily sector is reaping the benefits.
Homeownership declined to another cyclical low in the second quarter, measuring a seasonally adjusted 63.5% in the second quarter. This occurred as household formations popped, implying millennials are riding an improved labor market out of mom and dad’s house. Roughly a third of millennials live at home, according to Census data, which is an elevated figure. Continued gains in the labor market will coax increased numbers out into their own places, a majority of which will be apartments, as this age cohort lacks the financial wherewithal to buy.
The 12-month moving average of household formations is now up 1.3% from a year ago, and the number of new monthly formations is trending between 1,500 and 2,000, near the pre-recession peak level. Continued household formations, particularly from the millennial age cohort, will continue to fuel multifamily absorption, helping meet the increased supply pipeline that is forming to take advantage of record fundamentals.