Maximus Advisors

From a decade-high 3.5 million in 2001, household formations have dropped significantly in recent years, to 772,000 in 2008, 398,000 in 2009 and a very low 357,000 in 2010, well below the 1.1-1.3 million normalized level. This crucial driver of housing demand has been uneven over the past two years, mirroring the economic recovery.  After starting to increase in the second half of 2010 as the economy was gaining momentum, household formations were stagnant in the first part of 2011 amid the economic uncertainty.  Now, formations are picking up again.  The household formations estimate for full-year 2011 shows nearly 1 million new households -- which is a very encouraging sign for both overall economic trends and in particular for both single-family and multifamily housing, since it approaches the normal level for this country. Recently released monthly figures paint an even stronger picture, with 1.6 million household formations between December 2010 and December 2011. This underscores that household formations picked up strongly as 2011 went on, building momentum that could continue into 2012. This could be the beginning of the long-awaited pop in household formations that is typical of an economic recovery and has been heretofore lacking.  Continued strong household formations would generate true demand for housing that would help to speed the burn-off of excess inventory in the single-family segment as well as represent a second stage to the strong demand for apartments that we have seen in recent years.