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Search A A A REAL ESTATE RESEARCH ABOUT July 17, 2013 REAL ESTATE RESEARCH SEARCH Real Estate Research provided analysis of topical research and current issues in the fields of housing Are Household Formations on the Verge of Taking Off? Search and real estate economics. Authors for the blog included the Atlanta Fed's In our discussions with real estate builders and developers, we often hear about Jessica Dill, Kristopher Gerardi, Carl Hudson, and analysts, as well as the references to trends in household formations. The prevailing sentiment seems to be that while household formations were tempered during the downturn, they are Assessing the Size and Spread of Vulnerable Renter Households in Boston Fed's Christopher Foote and Paul Willen. bound to pick back up any time now. More importantly, this belief is often cited as justification for ramping up acquisition and development activities. the Southeast What's Being Done to Help Renters In December 2020, content from Real Estate Research became part of After hearing numerous contacts cite their expectations for resurgence in during the Pandemic? An Update on Forbearance Trends Policy Hub. Future articles will be released in Policy Hub: Macroblog. household formations, we began to wonder more about the underlying trends. Have recent household formation dynamics fundamentally shifted from the long- Examining the Effects of COVID-19 on the Southeast Housing Market Disclaimer run trend? Or have dynamics been stymied only temporarily before they eventually bounce back to the longer-term trend? And what effect will this Southeast Housing Market and COVID-19 Email Me bounceback have on housing demand? Update on Lot Availability and Construction Lending To better understand these dynamics, we invited Andrew Paciorek, economist at the Federal Reserve Board of Governors, to discuss with staff and leaders from Tax Reform's Effect on Low-Income Housing the business, civic, and not-for-profit communities his recently published working paper on the short- and long-run trends in household formation. (You can see his Housing Headwinds Where Is the Housing Sector presentation on the Atlanta Fed website.) Headed? Did Harvey Influence the Housing Before jumping into the findings on trends in the data, it seems appropriate to acknowledge that the data come from three main sources at the Census Bureau: Market? CATEGORIES the Current Population Survey, the American Community Survey, and the decennial censuses. (See the chart below from the full presentation available Affordable housing goals here.) While each source has its strengths and weaknesses, the important takeaway is that they all tell a different story when viewed in isolation. This gives Credit conditions Expansion of mortgage credit me some cause for concern when I think about trying to use these data alone as support for making development decisions. Federal Housing Authority Financial crisis Subscribe by E-mail Subscribe by RSS Other Fed Websites Comment Standards: Comments are moderated and will not appear until the moderator has approved them. Please submit appropriate comments. Inappropriate comments include content that is abusive, harassing, or threatening; obscene, vulgar, or profane; an attack of a personal nature; or overtly political. In addition, no off-topic remarks or spam is permitted. RECENT POSTS Foreclosure contagion Foreclosure laws Governmentsponsored enterprises GSE Homebuyer tax credit Homeownership House price indexes Household formations Housing boom Housing crisis Housing demand Housing prices Income segregation Individual Development Account Loan modifications Monetary policy Mortgage crisis Mortgage default Mortgage interest tax deduction Mortgage supply Multifamily housing Negative equity Positive demand shock Positive externalities Paciorek's research aims to isolate the drivers of household formation and, once they are better understood, use them to make an informed forecast about trends going forward. So, jumping now to the takeaways on the drivers of household formation, Paciorek finds that demographics (primarily aging) contribute the most to increases in household formation over the long run. Education and income, as well as rental costs, are also found to influence the decision to form a household. In the short run, rental costs, employment status, and income matter the most for decisions to form households. Rental homes Securitization Subprime MBS Subprime mortgages Supply elasticity Uncategorized Upward mobility Urban growth With that as context, let's look back at the data. From 2001 to 2006, approximately 1.35 million new households were formed each year. Then from 2006 to 2011, the number of household formations dropped to 550,000 each year. Paciorek predicts that if the projected population growth of 2.2 million per year is achieved, we can expect 1.5 to 1.6 million new households to form each year. However, he gives an important caveat: there remain frictions. For example, the restricted availability of credit could temper spikes in household formations over the short run. Paciorek's forecast is dependent on other data points materializing, but his prediction supports the idea that there will be a bounceback to, and possibly even above, the longer-run trend in household formation. If that bounceback is achieved, we could definitely expect to see an increase in housing demand. Perhaps our industry contacts are positioning themselves well after all. We invite you to watch a video of the talk that Andrew Paciorek gave on June 24 and to contribute to the conversation by posting your comments below. By Jessica Dill, senior economic research analyst in the Atlanta Fed's research department July 17, 2013 in Household formations, Housing crisis, Housing demand | Permalink Frequently Asked Questions Careers GDPNow Inflation Project Jobs Calculator Contact Us A to Z index Follow the Fed Market Probability Tracker Speakers Bureau Teacher Workshops Publications Disclaimer & Terms of Use Online Privacy Policy Wage Growth Tracker Data Privacy Policy Home 1000 Peachtree Street N.E. Atlanta, Georgia 30309 404-498-8500 Careers
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