As jobs are created over the next three years, pent-up households will form, with almost 55% (1.1 million) owning and 45% (865,000) renting. The rental proportion for the pent-up households is relatively high, due to the relatively young age of pent-up households. This is on top of the 3.95 million households that will form as the result of population growth of 9 million over the next three years (based upon the historical marginal household size of 2.28 people per household). Of these households, about two thirds (2.6 million households) will be single-family buyers and one third (1.3 million) will rent. Hence, over the next three years, we anticipate 3.8 million new single family households and 2.3 million renter households.

Based upon our statistical forecasts, we anticipate that about 1.8 million (~600,000 per year) single-family and about 800,000 (~270,000 per year) multifamily home starts will occur over the next three years. The net result will be that we burn through the excess inventory, even if household formation rates remain muted. Low single-family inventory levels will create strong upward pressure on home values, restoring some lost confidence in homes as an investment. In fact, a crazy but true research result is that many people use the past year’s home price increase to estimate future annual appreciation. This means that as home prices stabilize, so too will the belief in long-term appreciation.