After shacking up with family or friends for the past few years, millennials finally seem to be striking out on their own.
The number of households grew by 1.48 million in the first quarter from a year earlier, following a 1.66 million increase in the final three months of 2014, according to data released Tuesday by the U.S. Census Bureau. While the numbers can be volatile, it still marks the fastest back-to-back gains in household formation since the second half of 2005.
The Census data don’t break out age groups, so they don’t specify who is forming these new households. But separate reports show the previous weakness in household formation was being driven by millennials, or young adults born after 1980, so that group is most likely driving the improvement as well, said Maury Harris, economist at UBS Group AG in New York.
Household formation can be a nebulous term, so it’s often easiest to explain it using examples. The Census Bureau defines a household as all the people living in a house or apartment — or even a single room if it’s intended to be used as a separate living space.
A new household is formed if, for example, a person decides to move from his or her parents’ home (also a household) into their own studio apartment. Or it can occur when a couple who was living separately moves in together to a different home.
Tuesday’s Census data show that the households being formed these days are renters. Renter-occupied homes climbed by 1.87 million in the first quarter from a year ago, while owner- occupied units fell by 386,000.
“This is positive for the economy,” Harris said. “It would be better if they were buying instead of renting, but it still helps if they’re renting instead of living at home.”
That’s because these people have to fill their apartments with stuff — coffee makers, televisions, bed frames from Ikea. While they’ll probably be buying less than they would if they were new homeowners, consumer spending should still get a nice boost, Harris said.
More people seeking apartments also puts upward pressure on rents. As that happens, it will make buying a home a more compelling case for renters who have good enough credit to do so.
“There’s an effect on homeownership and home sales down the road,” Harris said. “It’s a plus for the economy.”