More households forming in 2014 which increases demand for housing.
According to Zelman & Assoc. 1.195 million households were formed in 2014, with 1.0% average growth accelerating from 0.8% in 2013, 0.5% in 2012 and 0.3% in 2011. The annual increase was the strongest since 2007, paralleling solid improvement in young adult employment. The normal rate of household formation is about 1 million per year. Since 2007 the rate of household formation has been much lower than that as households consolidated. Children moved back in with parents, or never moved out, adults took in roommates, and other techniques to reduce living expenses as a result of economic setbacks. Lately the rate of household formations has been increasing which increases demand for housing.
Approximately 65% of household formation is driven by 20-34 year olds. Not coincidentally, household formation has been improving alongside an increase in the employment rate of 20-34 year olds. In 2014, the average employment rate of 20-34 year olds of 92.0% was up almost 120 basis points year over year to the highest level since 2008. The improvement in the employment rate among this cohort was the fourth strongest over the last 40 years.
Zelman’s earlier research also established that most households will live in a single family, or multi-family, property based on their life style. Singles are more likely to live in a multi-family property (apartments, condos, and townhomes) where couples with children are far more likely to occupy a single family detached house. Whether the household rents or owns is a financial consideration but the type of property they are likely to occupy is clear.
As the name indicates, “baby boomers” created a significant bulge in our country’s population. However recent research indicates that the Millennial generation is now passing the “boomer” generation in numbers. As these Millennials marry and have children over the next 15 years I anticipate landlords will see an increase in demand for rental housing. While many families will choose to buy, that is not the obvious choice for many young families any more. The real estate down turn of 2008 has shown these Millennials that appreciation is not automatic any more.
Conclusion: owning rental property is still a good long term investment.