For the housing market to come back into some approximation of balance will require less supply and more demand. Additions to supply from new construction have been reduced to a trickle, but demand growth, until recently, has been far below underlying demographic potential, prolonging the imbalance. There are finally signs that demand is recovering.
Although demand is frequently assessed based on home sales, the more fundamental expression of demand is the net formation of households. A household is defined as an individual or group occupying a housing unit, so the number of households is, by definition, equal to the number of occupied units. If the adult population in each age bracket maintained a consistent tendency to form independent households, the growth in the adult population would translate into about 1.2 million households per year. Beginning in 2007, as the economy headed toward recession, however, the rate of increase in the number of households fell sharply, to about 500,000 per year. That slowdown was partly caused by lower net immigration, but it was mainly due to various forms of doubling-up. Doubling-up included more people living with roommates, partners, other families, etc., but the most common manifestation was an increase in the share of young (and not so young) adults living with their parents.
Among the population aged 25 to 29, for example, the share living in their parents' homes rose from about 16 percent in March 2007 to 18 percent in March 2010, while the share in that age group who were household heads declined from 47 percent to 44 percent. With about 20 million people in that age bracket, the decline in the "headship rate" of 3 percentage points translated into 600,000 fewer households. Across all age groups, changes in headship rates from 2007 to 2010 reduced growth in the number of households by about 2 million during 2007 to 2010.
There are a number of conflicting measures of the number of households, none of which is very precise, and many of which are only available after a substantial lag. The most current information is contained in the monthly Current Population Survey, which is conducted primarily to measure unemployment. The household totals from the monthly CPS are not shown in any standard reports, although a variant, from the CPS-related Housing Vacancy Survey, is available with a few months lag.
I tabulated some of the CPS monthly data through May 2011, and the data indicate a rebound in the rate of increase in the number of households in recent months. From May 2010 to May 2011, it appears that there was an increase of about 1.6 million, and the average number of households for the first 5 months of 2011 represented an increase of 1.3 million from a year earlier.
The CPS data do not show that there has been a decline yet in the share of young adults living with their parents. The increase in headship comes instead from more people living alone rather than in couples or groups.
In the 1970s, a surge in divorces contributed to an especially large increase in the number of households, and the recent pattern is somewhat analogous. The divorce rate hit a peak in 1979, however, and is now lower. You can't get divorced without first being married, and that prerequisite has been less frequently met. Over time, but especially in the last few years, the share of people who have never been married has grown, and recent growth in single-person households has come largely from never-married young adults.
There's a lot of noise in the monthly CPS numbers, but if the recent data are not just driven by random sampling error, by deficiencies in Census Bureau population estimates and weighting schemes, or by programming mistakes on my part, it suggests continued declines in vacancy rates and stabilization in the overall housing market. If growth in the number of households comes mainly from single-person households, however, that implies demand for smaller, multifamily rental housing, in urban settings, rather than a near-term revival in demand for suburban detached homes.
Household surveys do not actually count the number of households—or the number of employed or unemployed people. The surveys measure proportions of those surveyed and those proportions are multiplied by estimates of the number of housing units or of the population in different categories. Most estimates of the number of households, including those from the ACS, AHS, and HVS, are calculated by multiplying an occupancy rate by the estimated total housing stock. The CPS data discussed here are instead tied to estimates of the population. If the survey finds that 45 percent of non-Hispanic white women aged 30 to 34 are household heads, and the estimated population for that category is 10 million, that means 4.5 million households. Adding up the various population categories then produces an estimate of total households. (That's an oversimplified, but hopefully instructive, description.) Whether estimates based on population controls or housing stock controls are superior is debatable. The population-based estimates are closer to the household total in the 2010 census, but the decennial census data tend to count some vacant units as occupied.
The monthly CPS is not identical to the annual March CPS supplement that collects more detailed demographic data. The latest annual data are for March 2010 (actually collected February to April). The annual data for March 2011 won't be available until September.