However, three factors are reducing household formation, the primary driver of household demand:
1. Less immigration due to the post-2006 crackdown.
2. Less immigration due to the severe recession and high unemployment
3. 20-somethings who can’t get jobs are living with their parents.
Bottom line, household formation is about 1/3 of what it was forecast to be (0.3% growth instead of 1% growth). This is important because housing is a durable good with a very slow depreciation rate (about 1%/year). So replacement demand is only 1%, plus new household formation. If households are getting bigger, or immigration is slowing, or both, then demand drops precipitously, and prices fall.