The number of American households
dropped by an estimated 1.2 million between 2005 and 2008, even though
the population increased by 3.4 million in 80 of the largest
metropolitan areas during that time, according to a new study by a
professor at the University of Southern California.

More young people are living with their parents instead of moving out,
postponing the creation of their own households. Meanwhile, more
families are combining households for economic reasons, including the
loss of a home due to foreclosure, said Gary Painter, associate
professor in the School of Policy, Planning and Development at USC.
“With such a significant drop in households nationwide, it is clear the
most recent recession impacted individuals’ decisions to move out on
their own and caused many Americans to join already formed households,”
Painter said in a news release.

The decline in the number of households contributed to the excess supply
of apartments and single-family homes on the market. “The housing and
mortgage industries will feel the impact of this reduction in the number
of households for years to come,” Painter said in the report, which was
sponsored by the Mortgage Bankers Association’s Research Institute for
Housing America, a trust fund that aids research on mortgage markets and
real estate finance. Also, the recession caused a fivefold increase in
the rates of overcrowding, he said. A household that has more than one
person per room indicates overcrowding.

While the analysis incorporates data only through 2008, Painter said the
decline in household formation likely continued through 2009. “Clearly,
given the depth of the downturn in 2009, and the ongoing weakness in the
job market through the beginning of this year, this study gives no
reason to expect that household formation has picked up at all,” he said.

There’s a strong tie between unemployment and household formation rates,
Painter said. The national unemployment rate was 9.7% in March 2010, but
the recession hit younger workers much harder. Workers between the ages
of 16 to 24 peaked at a record high of 19.2% in September 2009, up from
11.8% in December 2007, according to a recent report from the Economic
Policy Institute.

Household formation should begin a return to a more normal level by
2012, as unemployment rates decline, Painter said. But he said there
isn’t a “demographic silver bullet” to solve the overhang of housing
supply in many markets.

However, when conditions do improve, there could be more young adults
becoming homeowners instead of moving into a rental unit, he said.
“Young adults need not only a paycheck, but also a sense that they have
sustainable employment before striking out on their own,” Painter said.
“Typically, many new households are renters, but if young adults
postpone moving out, some may have the ability to save for a down
payment, causing them to skip the rental stage and move right to
homeownership.”

The study, which analyzes data from the past 40 years, examines the
historical impact of recessions and elevated unemployment rates on the
formation of households. Findings include:

-The likelihood of a young adult forming an independent household falls
up to 4% in a recession, depending on the person’s age and the severity
of the changes in unemployment rates.

-The national homeownership rate has fallen to just above 67%, from
above 69%. Renter household formation dropped even more than the
formation of homeownership households.

-Native-born Americans showed a larger decline in household formation
and a larger increase in overcrowding rates than immigrants.

-Parents with higher incomes are more likely to have young adults living
with them instead of moving into the rental market. But children with
parents who have higher financial wealth are more likely to form their
own new rental households.

(c) 2010, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services.