Approximately 1.2 million households were lost from 2005 to 2008, despite the population increase of 3.4 million in the study area, according to a study released by the Mortgage Bankers Association. This decline in households is likely what contributed significantly to the excess supply of apartments and single-family homes on the market.
The study, ‘What Happens to Household Formation in a Recession,’ analyzes the impact of economic and housing conditions on household formation and how the recent recession has affected Americans' propensity to form new households, mobility trends and changes in the rate of overcrowding. Gary Painter, associate professor at the University of Southern California's School of Policy, Planning and Development, conducted the study, which was sponsored by the Research Institute for Housing America.
"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," explains Painter. "Due to data limitations, my analysis had to focus on household formation as of 2008. 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."
Household formation will only pick up once the job market stabilizes, he says, adding that young adults "need a sense that they have sustainable employment before striking out on their own."
"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," Painter says, predicting household formation is most likely to return to normal levels by 2012.
The housing and mortgage markets will be impacted by the reduction in the number of households for years to come, he says.
Though the national homeownership rate has fallen from a peak above 69% to just over 67%, this decline may be understating the magnitude of the change when one considers the simultaneous drop in renter household formation, researchers say. (The rental market saw a steeper decline in new households formed than the homeownership market.) As a result of this drop, the denominator in the homeownership rate calculation has been reduced, mitigating the decline in homeownership.
Researchers also say that this recession has caused an almost five-fold increase in the rates of overcrowding (i.e., more than one person per room in the household), indicating that many families are doubling up in response to the downturn.
The data show a greater impact on the creation of new households among native-born Americans over new immigrant households. Native-born Americans experienced a larger decline in household formation and a larger increase in overcrowding rates than immigrants.
Children whose parents have higher incomes are more likely to remain at home, with this effect the largest for youths moving into the rental market. However, children whose parents have higher financial wealth are also more likely than other young adults to form their own new rental households.
SOURCE: Mortgage Bankers Association