As the deep recession brought about severe job losses among workers, families have been struggling to manage on less income and cut costs in every way possible. And many Americans have dealt with a tough situation by reducing the biggest expense for any family – maintaining a separate household.
According to a study released by the Mortgage Bankers Association (MBA), 1.2 million households were lost during the period from 2005 to 2008 even though the population increased by 3.4 million in the area surveyed by the MBA. This reduction in the number of households has increased over-crowding in the home by almost five-fold, the study revealed, which defines over-crowding as more than one person per room.
The study titled, “What Happens to Household Formation in a Recession,” was conducted by Professor Gary Painter of University of Southern California and sponsored by the Research Institute for Housing America (RIHA).
The severe drop in households doesn’t include data from 2009 or 2010. Painter said, “Clearly, given the depth of the downturn in 2009, and the ongoing weakness in the job market through the beginning of this year, this study gives no reason to expect that household formation has picked up at all.”
These households disappeared as Americans struggling with job loss moved to share housing with other family members, friends, or roommates. Some families have lost their homes to foreclosure, some have decided to stop renting to save money, and others have simply delayed moving out of their parents’ home. The MBA says that this is likely to have contributed significantly to the oversupply of apartments for rent and single-family homes 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 Painter.
“This study clearly indicates that household formation will only pick up once the job market stabilizes. Young adults need not only a paycheck, but also a sense that they have sustainable employment before striking out on their own,” continued Painter. “Typically, many new households are renters, but if young adults postpone moving out, some may have the ability to save for a down payment, causing them to skip the rental stage and move right to homeownership.”
“Given the strong tie between unemployment rates and household formation, household formation will likely return to normal levels by 2012 as unemployment rates decline over the next two years,” Painter said. “There is no demographic silver bullet that will solve the supply overhang we are seeing in many housing markets around the country. The housing and mortgage industries will feel the impact of this reduction in the number of households for years to come.”
Source:
Mortgage Bankers Association
