Falling Number of New Households Could Prolong Recession
Friday, July 10, 2009
The number of people setting up their own households has fallen to some of the lowest levels in a generation, a trend that threatens to prolong the recession.
Many people, young and old, who in more promising times would be out on their own, are finding themselves like Alan Ridenour -- stuck at square one.
A few months ago, the 22-year-old Texan had imagined himself going from government-agency intern to financial analyst, moving out of his college dorm room and into a place of his own.
That was more than 50 job applications ago. He is still an intern. And instead of his own place, his current address is the couch in his sister's place.
"It's not exactly how you picture yourself out of college -- in an internship," he said. "You got to eventually get a job that pays the big-boy bills."
The recession has wreaked havoc on all sorts of life plans. Tumbling stock prices have cut retirements short. Layoffs have forced middle-aged children to move in with mom. Falling home prices prompt unhappy couples to rethink divorce. The larger consequence of all these discrete decisions is that Americans are forming fewer households, which in turn helps prolong the downturn.
Government data suggest that the recession has helped push down household formation. Between March 2007 and March 2008, the number of new households -- which is defined as any group of people sharing living arrangements -- grew by 772,000, to a total of 116.8 million, compared with an increase of 1.63 million a year earlier, Census Bureau data show.
Household formation rates could keep falling, said Richard Moody, chief economist for Forward Capital, a real estate investment and research company, because of the strong correlation between job loss and household formation. With unemployment not expected to peak until next year, "a lot of that isn't reflected yet" in the data, he said.
Fewer new households mean less demand for housing, furniture and paint, and less work for electricians, carpenters and real estate agents. The National Association of Home Builders estimates that the typical buyer of a new, single-family home, for example, spends $7,400 more than similar homeowners who don't move.
Household formation rates are also key to clearing the excess housing inventory, which is dragging down home prices and prolonging the housing slump. The authors of a study released in June by Harvard University's Joint Center for Housing Studies concluded that the glut of roughly 1.5 million new homes created by years of overbuilding during the housing boom would be gone by now if household formation rates had not fallen below historic levels.
Demographers and housing experts attribute the drop in household formations to millions of individual decisions to forgo immigrating to the United States, to put off a move, or to bunk with friends and family for a while.
Ivy Hover has been crashing with relatives for nine months after losing her Las Vegas house to foreclosure. Hover, a journalist, moved to Oregon, where she grew up but had not lived in for 20 years.