The simplest measure of demand for new homes is the number of newly formed households that wish to own. New-owner households can be created from immigration, separations from existing households, or by changing status from renting to owning.
The rate of household formation varies each year and is clearly impacted by economics and demographics. Since 1975, the strongest year was 2003 when almost 2 million new households were formed. The worst year was last year when only 357,000 new households were formed.
If housing was evenly distributed across the U.S. and if the existing housing stock fully met the current needs, we would only need an increase in new housing stock that kept up with the demand caused by new households and by former renting households who now can and want to own.
From 1995 to 2004, households formed in large numbers and homeownership increased as well. Across those 10 years, the ownership rate increased five full percentage points. The last three years have erased most of those gains.
Next month we’ll drill further into the demand for new homes, by consumer group and by price point.
Changes in Homeownership Add to or Subtract From Demand
According to U.S. Census data, from 1975 to 2010, the U.S. averaged 1.3 million household formations annually, peaking in 2001 and hitting a low in 2010. When ownership increases, demand swells, but when ownership declines, the net demand can be negative. In 2001, as ownership and household formation was surging, new-home sales couldn’t keep up. In 2010, as formations were at a new low and ownership was still declining, even the anemic level of new-home sales was more than the household demand numbers required.