New Home Starts and Stops

Housing construction has had

A month that's exceedingly bad

And the drop may be due

To Millenials who

Live at home with their Mother and Dad. 

The trouble of this generation
Finding jobs after their graduation
Has certainly stalled 

The stat that is called

The rate of new household formation. 

It's up to America's young

To climb on the opening rung;

From the nest you must fly

So the housing supply

Will not be so much overhung. 

Two loosely related statistics came out on Thursday: first, that the number of US multigenerational households had climbed to a new high; and second, that the number of housing starts had fallen off dramatically in June.  The first datapoint indicates less demand for homes and the second, less supply.

The Pew Research Center, in an analysis of US census data, determined that 57 million Americans, or 18.1% of the population, are living in households that combine young adults and their parents or even grandparents.  This is the largest proportion of such households since the '50s.  Pew sees the trend thusly: "The declining employment and wages of less-educated young adults may be undercutting their capacity to live independently of their parents."   While such arrangements may serve a few purposes, they do directly reduce the demand for housing.

Meanwhile, the Commerce Department announced that housing starts across the USA had fallen by 9.3% in June; in the South, they fell by 30%.  In spite of my poetic license above, most industry people interview by the Wall Street Journal did not blame stay-at-home Millenials for this development, which actually flies in the face of a more broadly upward trend over the last few years.  Many factors were cited, including the lingering effects of wet winter and spring weather; lack of skilled construction labor in some markets; and persistently weak consumer confidence.

However, the multigenerational household trend is not a flash in the pan; it has been building since the '80s, and over the long term it must impact the housing market in a fundamental way.

Housing Really Starts

Said the home builder Joey Ferraro*:
"I'm working like there's no tomorrow.
Though the fiscal cliff looms,
The consumer assumes
It's the best time to buy and to borrow."

The Census Bureau reported new residential construction today for the month of September, and stunned everybody with a 15% increase in housing starts. Ground was broken on an estimated 872,000 homes, versus 758,000 in August. Analysts, the most optimistic of whom had predicted 800,000 starts, were completely surprised; even Jack Welch, maintaining his Twitter silence from the safe distance of Quito, did not cast aspersions on this unbelievable number.

What unanticipated factors led to this surprising result? For one thing, as we read in the Journal today, a gradual improvement in the housing market has reduced the supply of unsold homes to six months, from eight months a year ago. But, aren't the threat of the fiscal cliff as well as tax and regulatory uncertainty putting a damper on economic activity? Not for home buyers, apparently. They appear to realize that, with home prices rising and mortgage rates at record low levels, there may never be a better time to act.

*All Joey Ferraros appearing in this work are fictitious. Any resemblance to real Ferraros, living or dead, is purely coincidental.

Note: this post appeared originally in the Wall Street Journal's Total Return blog.