Wanted: 6.5 million new households to clear inventory

It will take about of 6.5 million new household formations over the next five years to clear the excess housing inventory. Brendan Lowney, macroeconomist with Forest Economic Advisors, said Thursday an oversupply of about 2.5 million homes on the market is putting downward pressure on home prices as well as consumer demand. Analytics firm RealtyTrac said while the inventory of foreclosed properties declined over the last six months, the inventory of unsold REO increased in both April and May. According to Lowney’s calculations, it would take an average 1.3 million household formations per year for five years to clear “a significant portion” of the current supply of housing. Lowney told HousingWire it is plausible this scenario will pan out, as there are on average more than 1 million household formations per year. But ultimately, he said, formations will be influenced by employment. “The main driver of demand is household formation, and household formation is driven by employment and separation,” Lowney said. Lowney will discuss his analysis on June 23 in a teleconference sponsored by Industry Intelligence, an industry data company based out of Los Angeles. Write to Christine Ricciardi.