Household Formation Slows, Homeownership Rates Fall

• April 30, 2013

by Shilpi Paul

Trulia chief economist Jed Kolko delved into recently released Census data today, and found a couple national trends regarding homeownership.

First, household formation has slowed down. Newly formed households increased by 520,000 in the first quarter of this year, said Kolko, marking a drop compared to the previous six quarters. In particular, the share of 18-34 year-olds who headed their own households fell slightly, from 37.1 percent in March 2012 to 37 percent in March 2013, after rising between 2011 and 2012.

“Young people were slow to form new households in the past year,” Kolko told UrbanTurf. “We saw an increase in household formation last year, including amongst 25-34 year-olds. That has slowed down. It’s a little early to understand why.”

The rate of unemployment may offer some indication, said Kolko. “Generally, close to 80 percent of 25-34 year-olds are employed; right now it’s 75 percent. That group still has some catching up to do.”

Next, Kolko found that while the housing market seems be on the mend, the homeownership rate has fallen to 65 percent, compared to 65.4 percent in the first quarter of 2012 and 69.1 percent back in 2005. Kolko blames tight inventory as a limiting factor, as well as tight credit restrictions and an increase in the single-family rental supply. But limited savings might be the biggest reason.

“The main barrier is saving enough for a down payment,” said Kolko. “It takes a long economic recovery before people are able to save enough for a home. You don’t get a new job, and then the next day have enough money to put down a payment on a new house.”

This article originally published at http://dc.urbanturf.com/articles/blog/household_formation_slows_homeownership_rates_fall/7002