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Editor's Note: Below is an excerpt from today's Early Look written by U.S. Macro and Housing analyst Christian Drake. Click here to learn more about the Early Look. 

HH Formation | Is The Ball (finally) Underwater?:  HH Formation has been growing at a premium to new construction in recent years, raising concerns around a real and growing construction deficit.  There is, however, one significant caveat.  A large portion of Household Formation growth has been in the form of shared households – the so called “basement dwelling” phenomenon.

From 2007 to 2018 the number of shared households increased by 5.1mn, driving its share of total households up by +250bps, from 17.0% to 19.5%. 

In other words, what ostensibly looked like excess demand and a ball under water catalyst for new construction volumes was mostly illusory and a function of the significant rise in shared household formation. The good news is that the rate of shared household formation has slowed meaningfully the last few years (from 2013-2018, the change in shared households as a percent of total households has only been 0.5% … which compares to a share increase of 2% from 2007-2013).

In other, other words, what was an illusory construction deficit in now transitioning to an actual construction deficit.

CHART OF THE DAY: A Bullish Trend for U.S. Housing? - CoD1 HH Formation vs Starts

CHART OF THE DAY: A Bullish Trend for U.S. Housing? - early look