Tuesday, May 3, 2011

Bloomberg: Household Formation Begins to Pick Up, as Young Men Don't Want to be Tagged Losers - Look for an Increase in Divorce Rate as a Positive Sign!

Back in the depths of the Great Recession we often wrote about the atypical issues hitting the economy such as people renting out rooms in their homes at a much higher rate than normal, couples who wanted a divorce but could not afford to live on their own staying together, and the huge bracket of young adults who were stuck living with their parents rather than going out on their own.  [Apr 8, 2009: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces. Housing Bubble 2.0? (Not)]  Bloomberg reports that household formation is now at a level not seen since 2007 - granted that is a low bar as 2008 and 2009 were horried, but it's a start.  Much of this is young adults who are itching to fly out of the nest, lest they be tagged "losers" (especially men).  Obviously the culture here is very different than parts of Europe where many men live with parents until they get married.   Quite shockingly (to me at least), 20 MILLION American adults live with their parents - I assume by adult this means anyone over the age of 18.   Another sign of "progress" will be if the divorce rate goes back to a normal level ... irony at its best.

All in all most of these folks will probably be renters, especially the young adults - which should continue to lend strength to apartment REITs.  [Apr 8, 2011: Apartment Vacancies Drop to 3 Year Low as Rents Rise - Apartment REITs Benefit]  But some will also go and rent houses, which should at least partially help to offset the massive inventory (shadow or otherwise) issue we have in the country.

Via Bloomberg:
  • Millions of young adults like Webb are starting to leave their parents’ homes, creating households at the fastest rate since 2007. They’re helping to provide a so-called shadow supply that may boost U.S. housing starts more than 50 percent by next year and spur consumption at a rate almost double that of the past two years.  “I love my parents but I didn’t want to live with them anymore,” said Webb, a Spanish major at the University of Tennessee, who had been forced to share their home in Milan, Tennessee, after her job search stalled last year. “It was tough. I know students across the board who were in the same boat.”
  • Between 750,000 and 1 million new households will be created in 2011, predict UBS Securities LLC’s Maury Harris and IHS Global Insight’s Patrick Newport. That compares with just 357,000 added in the year ended March 2010, the lowest on record, according to the Census Bureau. As employment picks up, new households are likely to rise above the past decade’s average of 1.3 million a year, according to Newport.
  • “The moving-back-in-with-Mom-and-Dad phenomenon is creating a growing backlog of pent-up households,” ..
  • U.S. household formation in the three years ended March 2010 was about 2.3 million short of the long-term average, according to Census data.  Increasing demand for homes should help offset the so- called shadow inventory of vacant properties, Hunter said. 
  • Households form when young people move away from their parents or siblings, marriages break up into separate living quarters and immigrants find new homes.   “Once job growth improves a bit, formations will pick up strongly,” said Mark Zandi, chief economist in West Chester, Pennsylvania, at Moody’s Analytics Inc. He says 1.25 million is a normal annual rate.
  • Some adults who want to move aren’t able to yet, which contributes to the shadow demand. Jesse Hipp, 24, who graduated from the University of Arkansas in 2009, still lives with his parents in Fayetteville, Arkansas, while he works an overnight- shift with varying hours at discount retailer Target (TGT). He would like to find a job that makes use of his major in international relations and his ability to speak Chinese.  (good to see the U.S. job market for a BA international relations with ability to speak Chinese leads to work at Target - I assume that is a step up from being a barista?)  “On the personal ego thing, you don’t want to be 24 and living in your parents’ house,” said Hipp.
  • About 20 million adult children live with their parents, and most are eager to move, said demographic-trends analyst Peter Francese in Exeter, New Hampshire, of advertising agency Ogilvy & Mather.
  • In America, the extended family is a very unstable household,” he said. “Most guys who live at home beyond some young age walk around with a great big L on their forehead. It is just not acceptable. As soon as these young adults get a job and keep it for some reasonable period, they are gone. As more young people feel they will be able to keep a job, bingo, they are gone.”
  • Some households may be created by people who have delayed divorces for economic reasons, Francese said.  “There is a pent-up demand for divorces,” which are usually “a matter of convenience or discretion,” said Joseph Cordell, principal partner of St. Louis-based law firm Cordell & Cordell, which specializes in representing men in domestic litigation. His firm’s customer count rose by about 20 percent in the first quarter, and that is likely to continue in the next few quarters, he said.
  • The number of divorces dropped to 6.8 per 1,000 people in 2009 from 7.4 in 2006 prior to the recession. In a 2011 survey by the National Marriage Project at the University of Virginia, 38 percent of people considering a divorce or separation said the recession caused them to put aside their plans.

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