Household Formation Jumps to a Record Level in June

In June 2015, US household formation hit a record 2.246 million, an increase of 18.1% over the number in May 2015. This marks nine consecutive months of household formation figures above 1 million. June’s figure comes on the heels of a 56.4% jump in household formation in April. It appears that Americans are starting to form households at rates much more in line with those seen before the crisis.

Household formation in June was the highest it had been in 13 years. So are the good times here to stay? It will take a few more quarters of upticks before we can say for sure.

Household formation is an important thing to understand, as it indicates the pent-up demand in the housing sector. A household is a group of people living together as a family. It can be a nuclear family or a joint family, roommates, or a young couple.

Any decline or pickup in household formation indicates how sustainable the recovery in the real estate market will be. Healthy household formation growth can have a powerful multiplier effect throughout the rest of the economy.

The increase in household formation should contribute positively toward homebuilder stocks such as PulteGroup (PHM), Standard Pacific (SPF), and KB Home (KBH). This should also be positive for homebuilder ETFs such as the SPDR S&P Homebuilders ETF (XHB) and the iShares Dow Jones U.S. Home Construction ETF (ITB).