Household Formation and the Great Recession, by Timothy Dunne, VP and economist, Federal Reserve Bank of Cleveland. August 23, 2012.
“During the Great Recession, the rate at which Americans formed households fell sharply. Though the rate has recently picked up, it isnt fast enough to make up for the shortfall in household formation that occurred over the last several years. An analysis of recent household formation patterns shows that the greatest shortfall occurred among young adults and that it is related to weak economic conditions. Housing choices have shifted as well, with a greater proportion of young households living in rental housing rather than owner-occupied homes…This Commentary documents the shortfall in household formation experienced over the recent cycle, focusing in particular on the decline in household formation rates for younger adults. While younger adults between the ages of 18 and 34 make up a relatively small proportion of household heads, they account for almost three-quarters of the overall shortfall in household formation. Household formation rates in this younger cohort were related directly to economic conditions. The growth in the number of younger households was lower in metropolitan areas that experienced weaker labor and housing markets, though, to be sure, household formation slowed across the United States, consistent with the widespread nature of the shocks to output, labor, and housing markets that occurred during the Great Recession.”
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