household growth should still average 1.18 million a year

By
Real Estate Agent with Re/Max 10 New Lenox Illinois

THE PROSPECTS FOR HOUSEHOLD GROWTH

The joint center for housing studies at Harvard University reports

Given that the number of new homes added in 2002–11 was

lower than in any other ten-year period since the early 1970s, it

is difficult to argue that overbuilding is dragging down the housing

market. Instead, the excess housing supply largely reflects

the sharp slowdown in average annual household growth in

2007–11 to just 568,000—less than half the pace in the first half

of the 2000s or even the 1.15 million averaged in the late 1990s

 

 

 

are responsible for this drop: a decline in the rate at

which individuals (particularly those under age 35) form independent

households, and a sharp drop in immigration. While

a variety of forces contributed to these trends, the severity of 

the economic recession clearly played a significant role. As 2012

began, the ingredients needed to spark more normal household

growth were still not in place. In particular, the unemployment

rate remained elevated, and in fact would have been even higher

if so many discouraged workers had not exited the labor market.

But over the longer run, the most important drivers of household

growth are the size and age structure of the adult population.

Assuming the economic recovery is sustained in the next few

years, the growth and aging of the current population alone—

including the entrance of the echo boomers into adulthood—

should support the addition of about 1.0 million new households

per year over the next decade. The biggest unknown is the contribution

of immigration to overall population growth. But even

assuming net inflows are roughly half the level in the Census 

Bureau’s 2008 projection, the Joint Center for Housing Studies

projects household growth should still average 1.18 million a year

in 2010–20.

Another key question about future housing demand relates to

the aging of the baby boomers. The leading edge of this group

reached 65 in 2011, entering the phase of life when they are

less likely to move to different homes. And if they do move,

many are apt to downsize. The baby boomers should therefore

play a smaller part in setting the pace of housing demand in

the coming years. In fact, the baby-boom generation’s dominance

of the new home market had already receded by the

time of the housing boom. In 2010, the baby-bust cohort (aged

25–44 in that year) occupied nearly half of the homes built

since 2000, while the baby boomers lived in only 34 percent of 

these newer units

 

 

Over the next 20 years, the echo boomers have the potential to

spur new home demand to an even greater extent than their

parents did beginning in the 1970s. The good news for housing

production is that this new generation already outnumbers

that of the baby boomers at the same ages. With even a modest

lift from immigration, the echo-boom generation will grow

even larger as its members move into the prime household

formation years.

Because the echo boomers are much more racially and ethnically

diverse than previous generations, a larger share of tomorrow’s

young households will be minorities. Indeed, the Joint 

Center projects that minorities will account for more than 70

percent of net household growth in 2010–20. Both the housing

industry and the mortgage market will need to find ways to

adapt to this impending shift in housing demand.

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Dale Taylor

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