By Amy Hoak
RISMEDIA, April 9, 2010—(MCT)—The number of American households dropped by an estimated 1.2 million between 2005 and 2008, even though the population increased by 3.4 million in 80 of the largest metropolitan areas during that time, according to a new study by a professor at the University of Southern California.
More young people are living with their parents instead of moving out, postponing the creation of their own households. Meanwhile, more families are combining households for economic reasons, including the loss of a home due to foreclosure, said Gary Painter, associate professor in the School of Policy, Planning and Development at USC. “With such a significant drop in households nationwide, it is clear the most recent recession impacted individuals’ decisions to move out on their own and caused many Americans to join already formed households,” Painter said in a news release.
The decline in the number of households contributed to the excess supply of apartments and single-family homes on the market. “The housing and mortgage industries will feel the impact of this reduction in the number of households for years to come,” Painter said in the report, which was sponsored by the Mortgage Bankers Association’s Research Institute for Housing America, a trust fund that aids research on mortgage markets and real estate finance. Also, the recession caused a fivefold increase in the rates of overcrowding, he said. A household that has more than one person per room indicates overcrowding.
While the analysis incorporates data only through 2008, Painter said the decline in household formation likely continued through 2009. “Clearly, given the depth of the downturn in 2009, and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all,” he said.
There’s a strong tie between unemployment and household formation rates, Painter said. The national unemployment rate was 9.7% in March 2010, but the recession hit younger workers much harder. Workers between the ages of 16 to 24 peaked at a record high of 19.2% in September 2009, up from 11.8% in December 2007, according to a recent report from the Economic Policy Institute.
Household formation should begin a return to a more normal level by 2012, as unemployment rates decline, Painter said. But he said there isn’t a “demographic silver bullet” to solve the overhang of housing supply in many markets.
However, when conditions do improve, there could be more young adults becoming homeowners instead of moving into a rental unit, he said. “Young adults need not only a paycheck, but also a sense that they have sustainable employment before striking out on their own,” Painter said. “Typically, many new households are renters, but if young adults postpone moving out, some may have the ability to save for a down payment, causing them to skip the rental stage and move right to homeownership.”
The study, which analyzes data from the past 40 years, examines the historical impact of recessions and elevated unemployment rates on the formation of households. Findings include:
-The likelihood of a young adult forming an independent household falls up to 4% in a recession, depending on the person’s age and the severity of the changes in unemployment rates.
-The national homeownership rate has fallen to just above 67%, from above 69%. Renter household formation dropped even more than the formation of homeownership households.
-Native-born Americans showed a larger decline in household formation and a larger increase in overcrowding rates than immigrants.
-Parents with higher incomes are more likely to have young adults living with them instead of moving into the rental market. But children with parents who have higher financial wealth are more likely to form their own new rental households.
(c) 2010, MarketWatch.com Inc.
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