Americans are forming households at lower rates than before the Great Recession, according to new data published by Zillow.
This development, which spans all age and racial/ethnic demographics, took root in 2020 and reverses the rising level of household formation rates that occurred in 2018 and 2019. As a result, Zillow estimated there are 5.7 million “missing” households representing people who historically would have moved into their own home but were either unable or unwilling to accomplish that goal.
Zillow observed that the demographic with the greatest number of missing households relative to 2006 homeownership formation levels were white 25- to 29-year-olds, whose headship rate dropped from 46.1% to 41.3%, while the group with the largest fall since 2006 in the ability or tendency to form households were African Americans 25-to-29-year-olds, whose headship rate fell from 48.4% to 39.3%.
“The housing crash set back millions of Americans on the path to having their own place to call home, whether they owned or rented it,” said Zillow Senior Economist Jeff Tucker, who authored the new study. “Between a wave of foreclosures, rising rents, and underbuilding of new homes, the housing market became much harder to crack into from 2006 to 2017.”
Tucker noted that the last two years represented a go-go period for the pursuit of homeownership with “the economy is firing on all cylinders” and the job market offering multiple opportunities. However, the coronavirus pandemic-induced recession derailed that activity.
“The sooner we can put the pandemic and 2020 recession behind us, the sooner access to housing can resume its expansion,” Tucker added.
However, the Zillow study highlighted that housing supply lagged far behind demand well before the pandemic took root in this country. The post-recession years were not filled with a new wave of residential construction, and today Zillow admitted construction “remains low by historical standards” with a rate of three new homes being built per 1,000 Americans.
Complicating matters were challenges that impaired the construction industry, including shortages in buildable land and financing for construction, problems in filling construction jobs, and lethargic permitting processes that added to the time and costs of projects.
“On the eve of the pandemic, there were promising signs of a significant rise in new home construction, with new home starts exceeding 1.5 million (annualized) each month from December 2019 to February 2020,” Tucker stated. “Those numbers came crashing down in March but builder confidence has come roaring back, and now October 2020 once again saw construction begin at an annualized pace above 1.5 million homes, suggesting a robust pipeline of expanded housing supply in the near future.”
Tucker acknowledged it is uncertain whether this trend will continue into 2021 and beyond, pointing out that there could be 6.4 million more households in 2025 because so many millennials are aging into their late thirties.
“If and when the economy begins recovering again once the pandemic has passed, it may very well be that the best outcome will show that the decline in headship was only temporary and that demand for homes that may have been satisfied this year will simply be pushed into next year and beyond,” he said. “Even so, in only a few short months, the pandemic has proven how delicate progress can be. Millions of young adults moved back in with their parents in the early months of the outbreak, and while recent data suggest about half of them have already moved back out, big unanswered questions remain.”