Dramatic Increase in Home Overcrowding Observed Since Onset of Recession
The recessionrnis manifesting itself in family rooms throughout America as many parents findrnthat their nests not quite as empty as they had planned according to a study releasedrntoday by the Research Institute for Housing America, a division of the MortgagernBankers Association.
“WhatrnHappens to Household Formation in a Recession,” by Professor Gary Painterrnof the University of Southern California analyzes the impact of economic andrnhousing conditions on the formation of new households and the subsequent impactrnon household overcrowding, mobility trends, and vacancies in the rental andrnsingle family markets.
Michael Fratantoni, MBA'srnVice President of Research and Economics said of the study, “We hearrnstories about young adults remaining in or returning to the nest after collegernand of households doubling up. We wanted to go beyond the anecdotes to providernour members with hard numbers on the trends in household formation that willrnimpact demand for both single-family and multifamily properties.”
ProfessorrnPainter points out that 1.2 million households were lost from 2005 to 2008 evenrnthough the population of the study area increased by 3.4 million. “With such a significant drop inrnhouseholds nationwide, it is clear the most recent recession impacted individuals'rndecisions to move out on their own and caused many Americans to join already formedrnhouseholds.” Painter noted that his study was constrained by the lack of datarnon household formation beyond 2008. rnClearly, he said, given the depth of the downturn in 2009, and thernongoing weakness in the job market through the beginning of this year, thisrnstudy gives no reason to expect that household formation has picked up atrnall.”
In addition to informationrnon the current downturn, the study analyzed 40 years of data, a period whichrnincluded six recessions, to examine the historical impact of recession andrnunemployment on the formation of new households.
The study found that duringrna recession young adults are less likely to form independent households. While the incidence of this phenomenon variesrndepending on the age of the person and the severity of unemployment, newrnhousehold formation during the current period fell by up to 4 percent. Thernrecession has also caused a dramatic increase in the rates of overcrowding,rndefined as having more than one person per room in the household. Professor Painter calculated this increase asrnnearly five-fold, indicating that many families are now doubling up on livingrnarrangements. The impact on both household formation and overcrowding was morernevident among native born Americans than in immigrant households.
While the rate ofrnhomeownership nationally has fallen from its peak of over 69 percent to justrnover 67 percent, the magnitude of change in household status may be evenrngreater when the simultaneous decrease in the formation of renter households,rnwhich is even sharper than the drop in homeowner household formation, is takenrninto account.
Painter found the childrenrnof higher income families are more likely to remain at home, affecting thernrental market while children from families with higher financial wealth arernmore likely to form their own new renter households.
His said that his studyrnindicates that household formation will pick up only when the job marketrnstabilizes because young adults need a paycheck but they also need a sense thatrntheir employment is sustainable before they strike out on their own. “Given the strong tie between unemploymentrnrates and household formation, household formation will likely return to normalrnlevels by 2012 as unemployment rates decline over the next two years. There isrnno demographic silver bullet that will solve the supply overhang we are seeingrnin many housing markets around the country. The housing and mortgage industriesrnwill feel the impact of this reduction in the number of households for years torncome.” He added that, “Typically,rnmany new households are renters, but if young adults postpone moving out, somernmay have the ability to save for a down payment, causing them to skip thernrental stage and move right to homeownership.”
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