Growing Households are Fueling the Market -
Growing Households are Fueling the Market

So, how strong is the real estate market? According to the Illinois Association of REALTORS®, May 2013 marked 23 consecutive months of year-over-year sales increases, and was the strongest since 2006. However, the inventory of homes for sale has dropped 29 percent compared to last year. That means demand is high but supply is low.

There are several factors that have caused an increase in demand for all types of housing over the last year, but one in particular is especially important and often overlooked: household formation. Well below trend in recent years, household formation is set to drive the real estate market recovery into 2014 and beyond.

‘Household formation’ is a measure that indicates the number of new households formed due to a child moving out of their parents’ home, seniors living with a family member or individuals choosing to live alone after previously sharing a residence. The number of new household formations dropped dramatically between 2006 and 2011 – lower than it’s been in the past 40 years. This has been attributed to fewer young people having the financial stability to move out of their parents’ home because of a depressed job market, and household combinations resulting from foreclosure or the need to lower costs. The all-time low during the recession led to decreased housing demand, causing persistently flat or low housing prices.

The good news is that this cycle is coming to an end. Steady job growth and a boost in consumer confidence have led to a large increase in household formation throughout 2012 and 2013. Freddie Mac’s chief economist predicts that these gains will continue to drive the housing market recovery, as well as lead to an increase in new housing construction. In fact, some predict that the number of household formations could exceed pre-recession trends because of pent-up demand from those who were stuck during the economic downturn.

If you are thinking of selling your home, the time is now. Fundamental changes in the marketplace have led to an increase in home prices and less days on the market. Interest rates are showing an upward trend, creating the ideal situation to strongly consider a change. If you are interested in hearing more, a Baird & Warner agent can provide you with valuable information and insight about your specific area so you can make the decision that is right for you.