Despite ongoing concerns about the delay in household formation by younger buyers, demographically speaking things may be about to turn a corner.
The decline in the share of young adults living with their parents should provide a boost to household formation over the next few years, according to a client note from Capital Economics.
This is an upside risk to their forecasts for sales and housing demand and, perhaps, homebuilding, but it is unlikely to trigger a sharp rise in prices, the note says.
The subdued rate of household formation has been a drag on the housing recovery in recent years.
Most measures suggest that, since 2008, the number of new households forming each year has been unusually low – little more than half a million.
But in the latest Homeownership & Vacancy Survey, the Census Bureau estimated that household formation surged to 1.7 million in 2014, from 400,000 the previous year.
“Admittedly, the annual measures of household formation have always been volatile and it’s difficult to know how much weight to place on the latest reading,” says Ed Stansfield, chief property economist for Capital Economics. “But such a strong rebound could be a sign that housing demand is set to receive a significant boost in the coming year.”