A stronger pace of household formation has been a missing ingredient needed to bolster the housing recovery. Household formation, which refers to an individual, couple, group or family that forms their own independent living quarters, had been running at very low levels since 2007 but has recently accelerated.
The rate of household formation is affected by two primary drivers over time: Demographic and economic factors. As an example of demographic forces, the post-World War II baby boom led to high household growth, averaging more than 2 percent per year between the mid-1960s and the early 1980s, a period when the boomer cohort attained the prime ages for household formation. Then household formation rates nearly halved between 1990 and the mid-2000s when the smaller birth cohorts of the 1970s were aged in their 20s.
Likewise, the economy has an important effect on household formation. During an economic recession the rate of formation generally slows, reflecting the loss of good-paying jobs. During a recession, young adults may choose to live with family or share housing with roommates rather than get their own home. And job layoffs could force some who had already formed their own household to move back in with relatives. This effect was particularly pronounced during the Great Recession, the longest and deepest recession since the 1930s. Household formation rates fell to the lowest levels recorded since the end of World War II.
But over the past year the creation of new households has accelerated. Over the first six months of 2015, compared with the same period a year earlier, the number of new households has grown by 1.7 million, the largest annual growth in a decade. As the job market has improved, many millennials now have the financial independence to form their own household, and we anticipate that the pent-up desire of young workers to live on their own will sustain household growth of about 1.2 million per year, on average, for several years. In fact, the Joint Center for Housing Studies at Harvard University has projected an increase of 11 to 13 million households over the next decade, depending in part on the pace of immigration into the U.S.1
Immigration is not the primary driver of household growth in the U.S., but it is an important contributor. By region, the largest number of legal immigrants to the U.S. over the past decade has been from Asia. And not surprisingly, more immigrants settle in our most populous state, California, than in any other state: California has about 20 percent of all the legal immigrants into the U.S. And of these, people born in Asia represent more than one-half of new immigrants living in California.2
Major metropolitan areas that serve as a gateway into the U.S. tend to have higher foreign-born populations as a result. In California, the Los Angeles and San Francisco metro areas are the major gateway cities for immigrants, especially from Asia.3 In Los Angeles 39 percent of the population was foreign born, and in San Francisco 36 percent.4 This is similar to the shares in other English-speaking gateway cities along the Pacific Rim: in Vancouver, Canada; Sydney, Australia; and Auckland, New Zealand, about 40 percent of residents were born overseas, and the largest portion were from Asia.
In the U.S., immigrants have helped to support the housing recovery by forming households, renting or buying homes, and thus supporting home values in many hard-hit housing markets. With household formation now rising among the native-born population, the higher level of formations may provide the catalyst for more substantive gains in new home construction in the coming year, aiding the overall housing recovery.
Note: Australia and New Zealand information provided by Tim Lawless and Jonno Ingerson of CoreLogic Asia.
 Daniel McCue, George Masnick, and Chris Herbert, “Assessing Households and Household Growth Estimates with Census Bureau Surveys,” Joint Center for Housing Studies-Harvard University, W15-5, July 2015, Figure 6.
 U.S. Department of Homeland Security, Yearbook of Immigration Statistics, Table 4, “Persons Obtaining Lawful Permanent Resident Status By State Or Territory Of Residence: Fiscal Years 2004 To 2013,” and Supplemental Table 1, “Persons Obtaining Lawful Permanent Resident Status By State Or Territory Of Residence And Region Or Country Of Birth: Fiscal Year 2013.”
 Ibid., Supplemental Table 2, “Persons Obtaining Lawful Permanent Resident Status By Leading Core Based Statistical Areas (CBSAs) Of Residence And Region And Country Of Birth: Fiscal Year 2013.”
 U.S. Census Bureau, 2011-2013 American Community Survey 3-Year Estimates, S0201.
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