Biggest Boost in New Households Since 2007

6 05 2011

These days there is a lot of positive discussion about the real estate market picking up and showing signs of growth.  Clearly sliding home prices and lower mortgage interest rates have created additional affordability for many buyers, but who are these buyers anyway?  Young adults.

Interesting data from several experts shows that millions of young adults are beginning to move out of their parents’ homes and they are creating new households at the fastest rate since 2007.  These new buyers are providing a major boost to the U.S. housing market.  Bloomberg News reported that young adults could be causing a jump in sales—conceivably by more than 50 percent—which would nearly double the rate of housing consumption compared to the past two years.

In 2011, between 750,000 and 1 million new households are expected to be created, says UBS Securities LLC’s Maury Harris and IHS Global Insight’s Patrick Newport. According to U.S. Census data, in March 2010 new households were the lowest on record, standing at 357,000.  According to experts, this weakened rate in new household formation has threatened the housing market’s recovery.

For the past few years, young adults have found themselves moving back in with their parents, to save money and shield themselves from poor economic conditions.  With an improvement in the overall economy and an increase in employment opportunities, more young adults are “leaving the nest” to make new homes for themselves.

According to Brad Hunter, Chief Economist and National Director of Consulting for Metrostudy, “Housing starts are expected to get a boost to about 648,000 this year and near 900,000 in 2012 (it stood at 586,800 last year).”  Hunter predicts that the “increasing demand for homes should help offset the so- called shadow inventory of vacant properties.”

The economic impact of an increase in new home purchases cannot be ignored.  As households are formed, new owners increase spending by making more retail purchases, contracting services such as painting and deck building, and utilizing local utilities.  This “trickle effect” extends far beyond the initial purchase as collectively it all comes together to further stimulate an overall improvement in the U.S. economy.

So as these young adults find themselves emerging into the world of home ownership, they not only provide a dose of optimism to those looking for hints of economic recovery, they also offer a bit of hope to those parents seeking to give their “adult children” a little independence.

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