In the years during and since the Financial Crisis and Great Recession, new household formation slowed dramatically.
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Young adults remained living with parents and fewer people immigrated into the U.S.
From 2008 through 2010, only 509 thousand net new households were formed on average, but from 2011 on that figure increased to nearly 1.2 million households per year – the long-run average going back to 1990.
The number of households headed by someone 50 or older has grown the fastest as the overall population ages, but the number of younger households has also been increasing in recent years. Most new households being formed are renter households.
Failure to Launch: The Outlook for Household Formation & Home Ownership is the latest publication from The Demand Institute, a non-advocacy, non-profit think tank jointly operated by The Conference Board and Nielsen.
According to the report, while household formation has improved, it could be even stronger were more young adults to move out of their parent's home. In 2015, 31% of 18 to 34 year olds were living with their parents, up from 27% in the early 2000s.
While young adults are staying with parents for longer, they eventually move out and form new households, especially once they reach their 30's. The Demand Institute believes that net new household formation will continue to average about 1.2 million per year over the next decade.
As household formation strengthens and returns to previous levels, the report projects that demand for rental housing will continue to lead the way, and that the home ownership rate is unlikely to revert to previous highs seen during the housing boom in the early 2000s.
A period of sustained rental demand will have important implications for the U.S. economy, just like the boom in home ownership did in the early 2000s.
The rental market and multifamily construction continue to experience strong growth, while single-family home construction remains well-below historical levels. The implications also extend beyond the housing sector. ■