Every month various government and private organizations publish housing related numbers and statistics: housing starts, permits, completions and all manner of permeations on these indicators.
But the housing statistic most important to people in the lighting business is hardly ever mentioned and in fact, most people in the industry have probably never even heard of it…or at best know of it but aren’t paying much attention to it.
And that’s unfortunate because the numbers on Housing Formations are absolutely the best leading indicator of home furnishings related sales for the immediate future.
Housing Formation numbers are published monthly by the Labor Department’s Census Bureau office and it’s a relatively simple statistic: the number of new households that were formed in that month, based on individuals or groups starting a household that didn’t exist before. It could be through marriage – or divorce – or it could be post-school-agers moving into their own place. Whatever the reason it’s a new household – and one that will need the household furnishings that the industry sells, including lighting.
Atlantic magazine once called it the “most overlooked statistic in economics.”
In future issues of Light Source, a business newsletter for the lighting industry presented by Dallas Market Center (subscribe here) we’ll be presenting the most recent Household Formation statistics on an ongoing basis. But first, here’s the background you’ll need to understand the numbers better.
During the go-go days of the housing boom during the early 2000s, the household formation rate was out of control. New home construction was skyrocketing, interest rates were low and everyone wanted their own place.
Like many things, it all came crashing down in the Great Recession of 2008 and 2009. And since then it’s never really recovered.
The generation that would be forming new households – the Millennials -- were saddled with big college loans, a stagnant home construction market and severely tightened mortgage restrictions. Instead of forming new households as their predecessor generations did, they moved back in with their parents…and stayed there far longer than historical rates.
All of this began to change a little over two years ago. While the monthly fluctuations ever since often reflect seasonal variations and localized issues, the rate has steadily been climbing ever since.
A Deutsche Bank economist, speaking as the trend started, said, "Our best guess is that the jump in household formation is driven by accelerating job growth, lower oil prices and higher consumer confidence, including for the Millennials."
No less a source than Home Depot, which sells a fair amount of lighting, likes what it sees in the recent housing formation numbers. Said CFO Carol Tome on a call with analysts this summer, “That is good news. Why? Because first-time homebuyers tend to buy homes that need repair and remodel ... we anticipated this happening with Millennials coming into an age where they start to form families, children, or pets or whatever their family unit might look like. They're moving into homes, which bodes very well for us."
So, how good is good? At their peak in 2005-2006, the household formation rate grew by an average of 2%, a rate not seen since the dawn of the Baby Boomer housing explosion. By the depths of the Great Recession in 2008 and 2009, the rate had dropped to less than .5% growth. Last year the Census Bureau said the rate had climbed back to plus 1.5%. So far in 2017, the numbers have seesawed up and down so it’s hard to draw any conclusions yet…except that whatever the final number it will be better than in the depths of recession.
What’s more, a larger percentage of these households are owned rather than rented, which is even better for the lighting industry, particularly the hard-wired segment of the industry. Said one financial economist recently, “Since the end of the recession, Millennials have been moving out of their parents’ basements and renting, but now they too want to buy.”
All of which should light up business quite nicely for the foreseeable future.