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Fewer New Households Formed in Recession
Unemployment Likely to Make The Trend Worse

By Annys Shin
Washington Post Staff Writer
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.

She splits her time between a cousin's place in Portland and her parents' home in Salem while she looks for work in both cities. At times, she said, sharing a roof with mom and dad again has been like entering a time warp.

"It's not my childhood house or my childhood bedroom," Hover said, "but they're always your parents . . . they'll always tell you what to do. Then I'm like, ' Wait, I'm 40.' "

Housing economists have a slightly different term for Hover's feelings. They call it pent-up demand and regard it as a good omen for the housing market. Past recessions have shown that "household formation comes back quickly . . . if people even think the employment situation is improving," said George Masnick, a demographer for Harvard's Joint Center for Housing Studies.

This recession, however, may not follow past patterns because consumers are constrained in ways not seen after past downturns. They have lost record amounts of wealth and scaled back spending. Even after the recovery begins, job creation is expected to be sluggish.

The downturn also appears to have pushed down immigration levels, mainly by discouraging people from settling in the United States. Immigrants drive a significant portion of household formation. Immigration and housing experts do not know yet if in-flows will return to pre-recession levels soon, especially if jobs remain scarce. In-flows of illegal immigrants in particular stopped rising last year, for the first time in six years, according to estimates by the Pew Hispanic Center.

Recent immigrants have been hit hard by the declines in construction and manufacturing, but the recession doesn't appear to have sparked an exodus. Instead, they are sticking it out, which often entails doubling up.

After he was laid off in March from a construction job, Santos Duran, 36, moved from a two-bedroom apartment he shared with his brother into a house in Silver Spring with two families and two other boarders. He went from splitting $1,400 in monthly rent to paying $350, which allows him to get by on unemployment while he hunts for work.

Twice a week, Duran, who belongs to the Laborers' International Union, treks to the union hall to inquire about jobs. He's filled out more than 20 applications and hasn't heard back from a single employer -- a first for him since he emigrated from El Salvador in 2001. "This is a hard year I'm having," he said. "The hardest I've ever had."

Duran finds living in an overcrowded house uncomfortable, but he's not eager to leave.

"I don't think I'd move as soon as I got a job," he said. "I need to wait until I feel the economy recovers a little bit more."

Staff writer Nurith C. Aizenman contributed to this report.

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