WASHINGTON — The key to getting the nation’s housing market to bounce back from depressed levels lies in an unlikely source, two bond-fund analysts argue: the increased number of twenty-somethings who stay with their parents or live with roommates.
Daniel Jerrett and Onsel Emre, fixed-income analysts at Putnam Investments, have authored a paper arguing that the low rate of household formation holds out hope for an upturn in housing.
A household formation is when children move out of the house, people get married, roommates split apart or couples separate. According to Census Bureau data, household formation has broken below the 500,000 to 3.5 million yearly rate where it has held for many years as more people in their 20s choose to live with their parents or stay with their roommates longer.
But the household formation rate appears to be bottoming — and this may signal better times ahead for housing since it would signal increased demand, the Putnam analysts say.
Multifamily housing starts are booming even as single-family starts are languishing, as data this week showed. Moreover, rental vacancy rates are dropping even as homeowner vacancy rates are more stable.
“With would-be buyers still sitting on the sidelines and construction interests more firmly focused on the conversion of multifamily units, rental properties have bright prospects. The troubled state of the U.S. consumer will contribute to this growth,” the Putnam analysts say.
They expect the rental sector to lead the next upward cycle in housing. In turn, they expect the U.S. economy to be stabilized when this happens.
“When housing makes the turn from headwind to tailwind for U.S. economic growth, the uncertainty of the ongoing recovery could finally begin to clear,” the Putnam analysts argue.
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