Young adults and trends in household formation
The pace of recovery in the housing market has been slower than the pace of recovery in the overall economy.
The slow growth of household formation among young adults, a reversal of the sharp rise that occurred for this
group during the housing boom of the late 1990s and early 2000s, is a key factor behind this trend. In “Household
formation among young adults” (Federal Reserve Bank of San Francisco, Economic Letter, May 23, 2016), Fred
Furlong uses data from the U.S. Census Bureau’s Current Population Survey to analyze the evolution of
household formation among young adults. He shows that the current behavior of young adults reflects a return to
the norm that existed prior to the housing boom of the late 1990s.
Furlong analyzes the relative growth in household formation by looking at the shifts in “headship rates,” the share
of the population identified as heads of households. For nearly 50 years, the rate of growth in headships exceeded
population growth by 0.2 percentage point per year. Since 2007, that has dropped to −0.5 percentage point per
year. The paper goes on to examine the distribution of headship rates across four age groups: 18–24, 25–29, 30–
34, and 35–44. The first two groups in particular, 18–24 and 25–29, have experienced significant declines in
headship rates recently. Headship rates rose for all groups, but dropped after 2007 for the younger groups while
remaining relatively stable for the 35–44 year-old group.
For all four groups, ownership rates increased during the housing boom of the late 1990s and early 2000s, but fell
after 2007. Ownership rates have been driven down by several factors including tougher credit requirements, rising
foreclosures, and deteriorating household finances since the Great Recession. A concomitant effect of the
decreased household formation among young adults is the rise of alternative residential choices such as living with
parents, other relatives, or friends. The author goes on to n