Is a Drop in Household Formation Driving a Home Price Slowdown?

A nationwide housing correction is characterized by a slowdown in rent growth and home price growth amid falling demand, which Bill McBride says is the result of a dropoff in household formation. Throughout the pandemic, buyers and renters flooded the housing market thanks to the flexibility granted by ultra-low mortgage rates and remote work ordinances, causing the total number of U.S. households to soar in 2021, Deseret News reports.

As the dust settles post-pandemic, demand from buyers and renters is waning and household formation is slowing, likely signaling a deceleration in home price growth in the months ahead.

“Was this a one-time surge in household formation as the pandemic eased? Or will we see further increases in household formation even with little population growth (perhaps due to more work-from-home)? This is a key question for housing,” McBride wrote. “My suspicion is household formation will slow significantly, taking pressure off of demand.”

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