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Household Formation Discouraging Sign for the Housing Market

As if the employment issue, 11 months of housing supply on the market, and an estimated 6 million houses waiting in the wings as “shadow inventory” wasn’t enough bad news for the real estate market, consider this: household formation has turned negative for the first time ever.

Hedgeye Risk Management compiled a report based on proprietary census work that shows year-over-year change in US households will be negative in 2010.

Click for larger image:

Source: Hedgeye Risk Management

This trend could be explained by fewer people getting married, or putting it off. Hedgeye has seen a 10 percent increase in unmarried people aged 25-34 over the last decade. The Pew Research Center recently published a report that said the marriage rate has fallen to 52 percent of all adults overall, compared to 72 percent in 1960. Along with these social trends, tightening lending standards have made it more difficult for people to get a loan.

Any attempt at a housing recovery has occurred with all-time low mortgage rates. The Fed can’t manufacture these forever. I think the economic indicators point to the fact US housing has yet to find a bottom. While real estate values depend on the area, down to the location within a specific neighborhood, I wouldn’t run out and buy a house if you’re waiting for prices to get closer to bottoming out.

Hedgeye forecasts that US housing will fall another 15 to 30 percent from its current levels.


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