A Look at Future Housing Demand

With inventory tight and demand strong, home prices should continue to be well supported into the foreseeable future, and we can analyze Household Formations and Completions to illustrate this point.

A Household Formation occurs when an individual moves out of a parent's home to occupy their own residence or when a couple living together separates and the individual moving away obtains their own residence.

These formations create demand for housing. When a builder completes construction of a new home, this adds supply to the market and is known as a Household Completion.

When a builder completes construction of a new home, this adds supply to the market and is known as a Household Completion.

A look at the chart above shows how Household Formations, or demand, has been greater than the available supply of homes completed during the past decade. This has contributed to home price appreciation.

Notice the period between 2006 and 2009 where supply was much greater than demand, which was the major factor in home price declines. Demand is now outpacing supply, suggesting well supported home prices into the future.