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We're Bullish on a Housing Recovery

Stronger household formation by millennials is key.

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We believe U.S. residential construction growth will be robust over the coming decade, but the road to a fuller recovery has proved longer than expected. Household formation continues to build momentum, but slowly, especially among younger adults. We expect roughly 1.3 million starts in 2017, up from 2016’s 1.1 million.

A review of homebuilder and labor market data has us optimistic about residential construction in the coming quarters. Homebuilders have taken notice of the immense demand potential from millennials and have begun building smaller, more affordable homes to attract these first-time buyers. This means lower mortgage payments and down payments for strapped young adults. Labor markets have also tightened, catalyzing real wage growth since early 2015 for those aged 18-34. With job opening levels at prerecession highs across numerous industries, we expect further wage gains to support rising household formation in the coming quarters.

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Charles Gross does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.