From the Huffington Post:
Americans are feeling increasingly confident in the future and more and more are striking out to set up their own homes, a move that is helping propel the housing recovery.
The deep financial crisis and recession of 2007-2009 kept many Americans from leaving their parents’ nests and drove others back into them, putting a sharp brake on the pace at which new households formed.
Household growth averaged about 500,000 per year from 2008 through 2010 – less than half the rate seen at the height of the housing boom in the years just before that. The pace in 2010 was the weakest since 1947.
But the rate at which individuals or families are getting their own homes picked up over the past two years, underpinned by a steady if tepid economic recovery and gradual labor market gains. In 2011, households increased 1.1 million and they grew closer to 1.2 million last year.
“The rise in household formation bodes well for the housing recovery. Instead of having too many houses, we are turning to a situation where there aren’t enough,” said Guy Berger a U.S. economist at RBS in Stamford, Connecticut.
Indeed, housing has turned from the economy’s sorest spot to its brightest, with new building activity at 4-1/2-year highs. Housing activity in turn spurs related areas like furniture.
The worst recession since the Great Depression of the 1930s cost the economy 8.8 million jobs and drove the unemployment rate up to 10 percent.
Dim job prospects and growing financial stress undercut the pace of household formation – a central force behind housing demand – even though the population kept growing at a rate of about 2.7 million per year.
An analysis by economist Timothy Dunne at the Cleveland Federal Reserve Bank found there was a shortfall of 2.6 million households from 2008 through 2011 compared to what pre-recession trends would have suggested.
The gains are being felt primarily in the rental market, where rising demand has spurred a sharp pick up in construction of apartment buildings. In contrast, the U.S. homeownership rate hasn’t risen much from a 15-year low reached in early 2012.
“We are going to see more recovery in the rental market, in the very short run. As the market improves, people will start to face higher rents and over time, that will spill over into the owner-occupied market,” sai d Gary Painter, a public policy professor at the University of Southern California.
New home completions have lagged the increase in household formation, leading to a tightening supply.
According to RBS’ Berger, more than 1.3 million new residential structures should have been completed last year to keep pace with household growth. But only 651,400 homes were finished, the second lowest on record.
“Given that the stock of homes available for sale is already very low, inventories alone are unlikely to meet the demand presented by these new households,” said Berger.