One of the statistics that is seldom on the evening news but very vital to the economy is the number of new households being established on the United States. A household is defined as one or more individuals setting up a home for the first time. This includes not only young people moving out of their parents home but also individuals who were roommates that are each getting their own place. Newly divorced couples add to this.
Conversely, when junior moves back home after losing his job, a couple gets married and combines two households into one or three people give up their own places and share a three bedroom reflects a reduction in the number of households in the US.
Historically since World War II ended, the US has supported an average of about 1.1 million new households a year. Since 2007 though that number has averaged about 500,000 per year. So by some estimates, there could be as many as 4 million delayed starts of households.
As we all know, when you get your first place you get to know a lot of retail staffs on a first name basis. Buying everything from soap dishes to sofas and toaster ovens becomes a necessity. In addition, builders, lumberjacks, Realtors, mortgage brokers and rental agents are kept busy as well.
So imagine the impact of 4 million adults sharing sofas and toaster ovens instead of buying their own. An awful lot of people have lost their jobs making those items and dozens of other items that are part of having your own place.
An interesting statistic caught my eye recently regarding all of the above. In March of this year there were 170,000 new households formed. That’s an annual rate of over 2 million new households. That is double the historic average and four times what we have seen for a monthly average since 2007. Yep, that means about 170,000 housing units that were vacant this past month are now occupied and all those folks are going to need new stuff — lots of new stuff.
Historically, most new households are established in rental properties. As such that doesn’t mean new home sales are going to go crazy, at least yet. What will trigger strong home sales will come from the mid-levels of the economy as workers in retail and manufacturing, who already were renting, decide to move up to homeownership due to increased wages and job security. Also, there is a large group who already own a place but would like to move up as incomes and job security increase.
We are not totally out of the woods yet on the economy. We still need to create millions more jobs and rebuild wealth that was wiped out, but I think there is more light out there than many people have yet realized.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at www.mtnmortgage guy.com.