Saturday, July 13, 2013

US Household Formation Is At 40 Percent Of Pre-Recession Level: Negative Effect On GDP, Home Values, Household Wealth, Demand For Appliances And Furnishings

From Federal Reserve Bank of Atlanta, Perspectives on Real Estate Speaker Series, "Difficult Job Market Suppresses Household Formations, Fed Expert Says" June 24, 2013:
during and after the 2007–09 recession, the number of households established in America plummeted by about 800,000 a year from the previous seven years.
From 2007 through 2011, an average of roughly 550,000 households formed each year in the United States, according to the U.S. Census Bureau. This number was the lowest level since records started being kept after World War II, and was 59 percent below the annual average of 1.35 million household formations from 2000 to 2006.

The graduate in the basement may sound like a cliche. But that phenomenon appears to explain a large part of the fall in household formations, [Andrew] Paciorek [an economist at the Federal Reserve Board of Governors] indicated. He pointed out that in 2012, 45 percent of 18- to 30-year-olds lived with older family members, compared to 39 percent in 1990 and 35 percent in 1980. That increase translates to several million more young adults choosing to live with relatives rather than to form a new household.

Because of fall in formations, housing provided no spark for recovery
The decline in household formations is the main reason why the housing industry did not play its traditional role of driving the economic recovery, Paciorek explained. After previous recessions, residential investment typically accounted for 1 to 2 percent of annual economic growth, as measured by the gross domestic product (GDP). By contrast, during the first two years of the current recovery, residential investment made no contribution to GDP growth, and has only recent begun supplying a small lift, he noted.
The household formation crash also indirectly contributed to other woes, including falling house prices, diminished household wealth tied to lower home values, and weaker demand for expensive goods such as appliances and home furnishings.

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