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Young Adults Are Delaying Household Formation

Delaying Household Formation

Digested from “This one thing will make household formation jump, San Francisco Fed researcher” 
Market Watch (5/24/16) Riquier, Andrea

A new paper by economist Fred Furlong, published by the Federal Reserve Bank of San Francisco, says that young people are delaying setting up households relative to population growth.

In fact, according to a Pew Research Center study, millennials in 2014 were more likely to live with their parents than with a romantic partner. Furlong directly links the housing market’s slow recovery to the delay in young people being unwilling to become head of household. Will young adults avoid household formation even as they age? Furlongs says no.

“Whatever factors are weighing on young adult residential choices, the effects appear mainly to merely delay the timing of the decision to set up households,” Furlong writes. Younger adults eventually match the rates of household formation of their older counterparts; they just do so at an older age.

If what Furlong says holds true, the household formation may be set to make a big jump. “Given current 12-month annual headship rates by age group, the Census Bureau projections imply household formations averaging on the order of 1.4 to 1.5 million per year through 2020. That compares favorably to an average of a little less than 900,000 annually over the past five years.”

It’s unclear whether an increase in household formation necessarily means an increase in home ownership, since more people are choosing to rent.

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