It was a little over two years ago when, scrambling for the next catalyst to justify a home price rebound (which as we then said and have subsequently been proven right was rising only due to three factors: i) offshore oligarchs parking laundered "all-cash" money in luxury US real estate: a process that is slowly ending, ii) Wall Street firms using cheap REO-to-Rent credit to bid up distressed properties and flip them as rentals: a process that is virtually over and iii) banks hoarding foreclosed properties on their balance sheet to avoid an avalanche of supply which would crush prices: this has yet to be unwound) some of the more "rose-colored glasses" media outlets came out with bombastic titles such as this one: "The Most Overlooked Statistic in Economics Is Poised for an Epic Comeback: Household Formation."
While the article was quite correct in suggesting that household formation is very overlooked, the reality is that it is overlooked for a good reason: it refuses to play along with the broader recovery theme, which is a simple one: if there is to be a real housing recovery, households have to be formed at a much faster pace. Where the article also epically wrong was in its fundamental thesis: contrary to the author's expectations "backed" by many pretty charts not only has household formation not made a "comeback", it has crashed. In fact, according to Census Bureau data, in Q1 the number of households formed each month was 189,000, down from 1,563,000 in 2013, dropping more or less in a straight line since the article's publication!
For the visual we go to Bank of America's chart of the day, which shows a very unpleasant story for all those who keep betting that an "epic comeback" in household formation, and of course the economy, is just around the corner.
Here is what BofA had to say about this:
Equilibrium household formation: In equilibrium, home supply (new completions + excess vacant properties for sale + manufactured homes) should equal home demand (household formation + demolitions + second home purchases), assuming that builders were able to gauge market trends and build to meet the changes in demand. We can derive an equilibrium measure of household formation by solving for the variable based on the assumption that supply equals demand. It shows a clear downward trajectory in household formation with little recovery thus far, similar to the trend in the actual data.
And now time for the spin: apparently households aren't formed when it is cold outside (see: harsh weather which claimed some $100 billion in lost GDP output in Q1), and the ongoing collapse in household formation, which is now at 30 year lows, means the rebound, if it ever comes, will be that much more pronounced.
Actually, come to think of it, tt really is not that difficult to spin any horribly ugly data point when one's only fallback is endless optimism about the future.