Sara Aronchick, an economist with Goldman, Sachs & Co., released an interesting report late Wednesday that takes on the notion--popular among housing bulls--that the housing boom can continue thanks to favorable demographics. She notes that household formation – the growth rate in the number of households -- has slowed sharply in the last 30 years, to an annual average of only 1% over the last five years. That’s down from 1.5% in the 1990s, and down from 2.5% in the late 1970s.
One reason is the reduced growth in the 20- to 29-year-old population, but the changing composition of immigration could be another problem...
Some housing bulls have argued that immigration will ultimately be the salvation of the housing market. But Aronchick is a bit dubious. She notes that there’s been a slowdown in immigration following Sept. 11: In 2002 and 2003, an average of 1.1 million immigrants entered--36% less than in 2000.
But she also notes that there’s a change in the composition of new immigrants that is dampening household formation. She writes:
“The share of unauthorized immigrants grew to 46% in 2004 from 36% in 1990. Moreover, among legal immigrants, an increasing number are family members. In 2004, slightly less than half of all immigrants had family members that were US citizens. Unauthorized migrants as well as family members would be expected to live with family or community already in the country--at least at first--rather than form new households.”
She acknowledges that some experts believe that immigration could begin to pick back in the coming year. But still, she concludes, “the composition of immigrants and the lag between time of entry and new household formation suggests that the demographic underpinnings of the housing boom will remain relatively weak in the near term.”