1.1 million new households were formed during the third quarter of 2016, according to the U.S. Census Bureau. This figure includes households formed in both rented and owner-occupied units. Out of the 1.1 million total households formed, nearly half of them were formed by new homeowners.
This lifted the U.S. home ownership rate to 63.5% in the third quarter, which is the highest ratio in ten years. The sudden uptick counters an extremely sluggish household formation that occurred during the prior quarter.
The Census Bureau tracks the formation of newly-occupied housing units to help organizations evaluate the need for new housing programs, and to gauge national economic conditions. Looking at the household formation trend from an economic view, some analysts attribute the third-quarter surge to motivated Millennials, who have delayed their entry to the housing market for several years.
The strength of the job market and the improvements in wage growth may have finally bolstered the confidence of young adults who suffered from stagnant wages and lean employment prospects during the Great Recession.
Given the current direction of employment conditions, it is reasonable to expect that new household formation will continue to improve in the upcoming quarters. However, the rising cost of rent in major metropolitan areas along with low home inventories, could keep new household formation at modest levels.
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