The 2010 Decennial Census reveals that household growth averaged only 1.12 million per year during the 2000s—a full 17 percent lower than in the 1990s. After a strong start, household growth dropped sharply by the end of the decade. According to the major federal surveys, the pace of household growth averaged well below 1.0 million annually in 2007–10
I don’t think anyone should be surprised that household growth slowed between 2007 and 2010, when compared to the boom years. There was a lot of housing uncertainty given the global financial crisis and bad lending standards that spread through the economy. Prices for homes were at prices never seen before, and job growth never really recovered, going back all the way to the bust in 2001. To add more fuel to the fire, many young adults are going to school for longer, which puts them in debt before they even get a chance to apply for a mortgage. If people already have debt in the many of thousands of dollars, should we really expect these same people to get a mortgage to buy their first home? Certainly not in the current lending market.
The fact that the increase in seemingly temporary living situations—young adults living with parents and families doubling up with other households—accelerated after the housing bubble burst and the Great Recession began suggests the presence of at least some pent-up housing demand. But how much and how soon this demand will be released remains uncertain. When employment growth picks up and more young adults have jobs, headship rates should recover enough to lift household growth above trend for a period of time.
Talk about a loaded statement. There is talk of families living together in homes, pent up demand (which we have already been able to show you with clarity), and uncertainty about unleashing demand. When push comes to shove, people need to live somewhere, so the fact that 2 families can live in a single large home makes sense. It is almost inevitable that this trend takes place, especially when one considers that the greatest fortunes and wealth we know of in the world, are created through strong units of cohesion between people – also known as family and friends.
Does this consolidation show pent up demand? Of course! The 2 families living together probably moved into a larger house, but now have less debt burdens than before, so it improves their quality of life, and confidence. We know confidence drives demand! All the United States has to do is figure out how to unleash all of this demand, and the resounding consensus is that we need job growth. Stay tuned!
With household growth among young adults slowing, the aging of the baby boomers will dominate changes in the age distribution of households. While shrinking in size as mortality rates rise, the baby-boom generation far outnumbers its immediate elders and will therefore add dramatically to the senior population. The number of households with heads between the ages of 55 and 74 is set to increase by 10.2 million from 2010 to 2020. This projection is much more certain than that for younger households because it is less subject to unknowns about trends in immigration and headship rates.
Moreover…
The share of individuals that move falls steadily from young adulthood on, with no break in this pattern around retirement age. When they do relocate at these stages of life, many owners downsize to smaller units. At last measure in 2007, one-third of 55–64 year-old homeowners had moved within the previous 10 years. Some 45 percent of these households had chosen housing with fewer rooms, compared with 35 percent of movers aged 45–54. While just one-quarter of homeowners aged 65–74 relocated during this period, members of this age group were even more likely to downsize, with 58 percent living in smaller units after their move.
If you read our previous post (9.10.11), you will have been prepared for this statement and our view that Boomers will buy smaller homes and drive up at least some housing demand just by their sheer numbers. We are really just spectators. Come hell or high water, we get older – and we can say that with 100% certainty.
As a result, demand for smaller homes should increase steadily as the baby boomers age. Since young first time Home buyers also tend to purchase homes that are smaller and less expensive than average, the echo boomers will add to the demand for more modest housing as they replace the smaller baby-bust generation in the under-35 age range.
It is a simple equation: Young people who are moving out don’t need huge homes and they have small families. So they get a small home. It could even create a nice housing push as the echo boom will be buying homes at the same time as their boomer parents. Stay tuned, there’s more!