Household formation, which stagnated when recession kept many young Americans from leaving their parents’ home or forced others to return to them, is finally on the rise.
The number of households increased 1.1 million in 2011 and nearly 1.2 million last year, underpinned by gradual labor market gains and steady economic improvement.
“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, RBS analyst.
The gains are being felt the most in the rental market, where rising demand has triggered a spike in new apartment construction. Increased building activity, in turn, has also stimulated such related areas as furniture sales. By comparison, the U.S. homeownership rate has not risen much from a 15-year low reached in the first quarter of last year.
“We are going to see more recovery in the rental market, in the very short run,” said Gary Painter, a public policy professor at the University of Southern California. “As the market improves, people will start to face higher rents and over time, that will spill over into the owner-occupied market.”
A monthly National Association of Home Builders survey shows that growing demand and tightening supply have pushed home builder sentiment to a near seven-year high.