Household formation, which stagnated when recession kept many young Americans from leaving their parents’ home or forced others to return to them, is finally on the rise.



The number of households increased 1.1 million in 2011 and nearly 1.2 million last year, underpinned by gradual labor market gains and steady economic improvement.
RBS analyst Guy Berger remarks, “The rise in household formation bodes well for the housing recovery.



Instead of having too many houses, we are turning to a situation where there aren’t enough.”



The gains are felt the most in the rental market, where rising demand has triggered a spike in new apartment construction. Increased building activity, in turn, has also stimulated such related areas as furniture sales. By comparison, the U.S. homeownership rate has not risen much from a 15-year low reached in the first quarter of last year.



“We are going to see more recovery in the rental market in the very short run,” said Gary Painter, a public policy professor at the University of Southern California. “As the market improves, people will start to face higher rents and over time, that will spill over into the owner-occupied market.”



A monthly National Association of Home Builders survey shows that growing demand and tightening supply have pushed homebuilder sentiment to a near seven-year high. NAHB Chairman Barry Rutenberg, a homebuilder from Gainesville, Fla., says that more residential developers appear undaunted by the possibility that banks could dump an increasing number of foreclosed homes onto the market as conditions improve. He estimates that approximately 916,000 new residential projects would break ground in 2013 versus around 780,000 last year.