Housing market: family composition is the most ‘underreported’ factor

Bill McBride, author of the economics blog Accounts are riskyThere is a major reason behind the slowdown in rent and home price growth amid today’s US housing market corrections, he said.

to live Twitter space Hosted by Fortune Magazine on Friday, McBride called it the most “under-reported” factor.

What is this? Family Formation – due to its acceleration amid the COVID-19 pandemic and how it is now slowing.

Last year, “the home price boom made sense for a number of reasons,” he said, given that many millennials are getting old at home buying age. “But what was surprising was the rapid increase in rents at the same time, which means we’re getting demand for both home buying and renting.”

It was the head scratcher that McBride called him.”house secretIn a series of blog posts. In one published in May, McBride cited a paper written by researchers at Federal Reserve Bank of San Francisco and the last of Federal Reserve economists Compared with the rise in popularity of remote work amid the pandemic and a significant rebound in family formation soon after the initial shock when COVID-19 first hit the US

While Census Bureau data shows that the number of households initially declined in 2020, McBride writes that it also shows number of families A sharp increase in 2021, and the number of people per family decreased.

Was this a one-time increase in family composition as the pandemic receded? Or will we see further increases in family formation even with little population growth (perhaps due to increased work from home)? This is a fundamental question for housing.” McBride Books. “I doubt family formation will slow down significantly, taking the pressure off demand.”

Recently, the Federal Reserve Bank of San Francisco published an economic letter titled Remote work and housing demand‘, which showed that telecommuting drove more than 60% of home price increases in the US housing market. This study “really helped make sense of what happened,” McBride said.

While rental and housing prices are still high compared to 2019 levels, Price growth slows down and begins to decline The Federal Reserve’s battle with inflation is also having its effect Mortgage rates are now hovering around 7%..

During the pandemic housing frenzy, Rising home prices have also put pressure on the rental marketpressure on renters and first-time homebuyers Prices have reached record levels. But now, as higher mortgage rates ease home buying, McBride doesn’t think that will translate into more pressure on the rental market.

“With family composition declining, I don’t think that’s going to happen,” he said.

Now, as the dust from the pandemic fades, “what we’re seeing is that family formation is slowing down dramatically,” McBride said.

“It’s totally because we’ve seen this huge increase in family making primarily because of working from home,” McBride said. This is why rents are not booming more with higher mortgage rates. In fact, everything is cold because the home composition is cooling. ”

However, while the rise of working from home has been a “big driver,” McBride added that he doesn’t think this “will reverse. I’m not saying that.”

“But what we see is Rent growth slows down sharply,” He said.

This slowdown in family formation, combined with rising mortgage rates, is compounding the effects on housing demand, which may help explain how fast and severe it is. Home prices have begun to correct, especially in the housing markets of the West that have become ground zero for the pandemic housing pandemic. Those include Boise, Idaho; Austin, Texas; And the Salt Lake City, Utah.

Meanwhile, McBride noted that a record number of housing units are under construction and due for release next year, which could also have significant effects on supply versus demand.

“So we’re going to see some very unusual dynamics,” he said. “We’re going to see a slowdown in both home buying and apartment rentals.”

Leave a Comment