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The number of households in the United States shrank by 1.2 million from 2005 to 2008, as the recession drove people to give up independent living and move in with relatives and friends.

The decline occurred despite an overall population increase of 3.4 million according to the study, released today by the Mortgage Bankers Association. The study concludes that this consolidation of households is likely a significant contributor to the excess supply of single family homes and apartments now on the market.    ”With such a significant drop in households nationwide, it is clear the most recent recession impacted individuals’ decisions to move out on their own and caused many Americans to join already formed households,” said Prof. Gary Painter of the University of Southern California, who conducted the study.   

Trend likely worsened in 2009

  The study concluded it was likely that even more households were lost in 2009, but Painter said data limitations forced him to focus on the period ending in 2008.   “We hear stories about young adults remaining in or returning to the nest after college and of households doubling up,” said Michael Fratantoni, MBA Vice President of Research and Economics. “We wanted to go beyond the anecdotes to provide our members with hard numbers on the trends in household formation that will impact demand for both single-family and multifamily properties.”   The study found an almost five-fold increase in overcrowding, defined as having more than one person to a bedroom, suggesting that many families are doubling up in response to economic pressures. It was found that the likelihood that a young person will form a new household falls by 4 percent in a recession, depending on the person’s age and severity of the downturn.   Children of higher-income parents were more likely to remain at home, rather than moving into the rental market. However, children of high net-worth parents had a greater likelihood of forming their own independent rental households.  

Could help young people buy homes

  “This study clearly indicates that household formation will only pick up once the job market stabilizes,” Painter said. “Young adults need not only a paycheck, but also a sense that they have sustainable employment before striking out on their own.”   Somewhat surprisingly, Painter said one effect of young people staying with their parents could be a boost in home ownership once the economy improves. He noted that young people living at home may be able to save for a down payment, and therefore skip the rental stage and go directly to home ownership when they move out.   Painter predicted that levels of household formation will return to normal by 2012, as unemployment declines, but that the real estate and mortgage markets will continue to feel the impact of the reduction in households for years to come.   The study was sponsored by the Research Institute for Housing America. Painter is an associate professor in the School of Policy, Planning and Development at the University of Southern California.

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