Household Formation and New Home Sales Both Running Strong

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

Two of the most interesting housing indicators to hit the news in the last week were an uptick in new home sales and a discussion about the rise in household formation.
Let’s look at household formation first.

First, what is it? Essentially it’s when a person or group of people forms a household. It’s significant in housing because the market needs households in order to create demand for both home purchases and rentals.

The Census Bureau tracks this number and not surprisingly found over the last 4-5 years that more college graduates and young adults either moved back in with their parents to wait out a tough economic climate or never left, which stifled household formation.

But, according to the Census Bureau and an analysis by Zelman and Associates, household formation is trending upward once again, thanks in part to Millennials who are moving out of their parents’ houses.

Obviously, young people moving out, forming households and starting their lives is good news for the economy and especially the housing market. It doesn’t mean folks are jumping straight from mom and dad’s basement to their first home purchase, but it’s an important step in the recovery engine.

New home sales

The other good piece of news this week was the rise in new home sales, which last month jumped to the highest level in more than two years. In its latest release, the Commerce Department said that new home sales were up 5.7% in September to a seasonally adjusted annual rate of 389,000. That’s up from 368,000 in August and the highest rate since April 2010, when the federal homebuyer tax credit boosted sales.

Further, sales have risen 27.1% in the last year, the strongest yearly gain since February.

Strong growth in new home sales is an important indicator as it can help to spur more new construction, which some markets dealing with constrained inventory really need right now.

In addition, new home construction has the potential to create more jobs and boost economic growth. Another win for housing.

As we start to approach the end-of-year holiday season, we can feel pretty good about the state of the recovery and how things may fare in 2013.