The mystery of slow family household formation

One striking feature of our current economic malaise is that new household formation is well below historical trends. Fewer people are striking out on their own for housing, children are moving back in with their parents, and that’s all weakened the demand for new home-building. Many analysts hope the housing market will pick up once this trend reverses itself — and that, in turn, should lead to a sustained economic recovery.

But will this trend reverse itself? And what’s driving it? Tyler Cowen points to an interesting graph at the blog SoberLook showing that the slump has been driven mainly by families. Or, rather, the lack of families. For the past three years, the number of new family households has actually declined — the first time that’s happened since 1947. (By contrast, non-family households, in which unrelated people live together — either singles or college students or Craigslist roommates — are once again growing at their pre-recession pace.)

The absolute drop is likely the result of family members moving in together: More and more twentysomethings, for instance, may be living at home with their parents. At the same, Americans seem to be forgoing or delaying marriage, which has led to slower family household formation. The obvious theory here is that has been driven by the weak economy and high unemployment rate. If that’s true, then as companies start hiring and things start improving, family formation should go back up, demand for housing will rise, construction will pick up, and, voila — healthy economic growth.

On the other hand, Michael Shermer argues that the dip could well be due, in part, to long-standing cultural factors, including a decades-long decline in marriage rates. And if the marriage rate does keep sharply declining for non-economic reasons (which is a big unknown), then we might not see as big a pick-up, or as sweeping a housing recovery, as many optimists predict.