As more live together, housing slump lingers

PHILADELPHIA - The number of new U.S. households is at its lowest since 1947, data from the Census Bureau show. And that is helping keep the supply of unsold homes at nearly record levels nationwide, even though relatively few houses are being added to the inventory.

From March 2009 to March 2010, the number of households rose just 357,000, according to the census data. In the previous 12 months, the number increased only 398,000, the third-smallest increase on record since World War II.

New households typically are created by college students or young people moving into their own homes, married couples splitting up or new immigrants arriving in the country.

From 2002 to 2007, before the economy started on its downward trajectory, household formations averaged 1.3 million a year, U.S. census data show. But there has since been a dramatic drop in the growth of U.S. households.

"That's the consequence of the consumer fear of what's happening with the economy and with the job market," said Lucien Salvant, a spokesman for the National Association of Realtors.

"When people are afraid of losing their jobs or not being able to get into the job market, they are not thinking about buying a home," Salvant said. "Many opt to stay at home with parents, or to share rentals with friends."

The nation's gross vacancy rate - the proportion of vacant housing units - stood at 14.5 percent at the end of the second quarter of 2010, census data show.

In a well-functioning economy, the number of new households "would be closer to 1.25 million," said Mark Zandi, chief economist of Moody's Analytics in West Chester, Pa.

During normal times, builders need to add about 1.7 million houses a year to meet underlying demand stemming from, among other things, the need for replacement homes and the desire for second homes, as well as increases in the number of households.

For example, about 250,000 new homes are needed per year to replace houses that are destroyed by fires and natural disasters or that wear out from neglect or old age. Demand for second homes combined with other miscellaneous factors accounts for 50,000 to 100,000 new houses a year.

Household growth typically requires 1.3 million to 1.4 million units.

"The sharp drop in household formation largely explains why the housing glut remains stubbornly high, despite the plunge in housing starts in recent years," said housing economist Patrick Newport of IHS Global Insight in Lexington, Mass.

Two major sources of household formation, immigration and marriage, are well below averages of recent years.

The National Center for Health Statistics reports that the number of marriages per thousand population fell from 8.2 in 2000 to 6.8 in 2009. Divorces per thousand population fell from four in 2000 to 3.4 in 2009.

There are no hard data on "doubling up" - young people sharing rentals or moving in with their parents in a tight job market - although anecdotal evidence indicates the latter has become more commonplace in recent years.

During the late 1990s and in the first years of this decade, the housing industry banked on immigration for a good part of its growth.

From 1990 to 2000, the population grew by nearly 33 million, with almost half of that from immigration, according to data provided in 2003 by James Johnson Jr., a professor at the Kenan-Flagler Business School at the University of North Carolina-Chapel Hill.

In the 1990s, census data show, immigrants accounted for 250,000 household formations a year. Immigrants typically rent for their first few years in this country, housing economists say. Then, after becoming established, they become a major factor in the for-sale marketplace.

Newport believes that a drop in immigration may have played a greater role early in the recession than it did later on. In 2009, census data show, households headed by the native-born 34 and younger fell by 338,000, indicating that doubling up was the larger contributor.

The number of households headed by those ages 15 to 24 fell 124,000 (students moving back in with parents), while households with six or more people rose 355,000, an 8 percent increase.

A common misconception, Newport said, is that foreclosures account for the oversupply of houses.

"A foreclosure or a bank taking possession of a home," he said, "does not by itself add to the housing glut."

If a household vacates a home and moves into a rental unit, the housing supply is unchanged. Supply increases, however, if one household moves in with another, Newport said, or if its members become homeless.

by Alan J. Heavens Philadelphia Inquirer Oct. 15, 2010 12:00 AM



As more live together, housing slump lingers