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Household formation slows, but housing sector trends favorable, study shows

Long-term demographic trends are favorable for the housing sector, despite U.S. household growth that is expected to slow to 11.5 million in the coming decades.

As mortality rates rise among the baby-boom generation and white population growth slows, minorities will account for more than 90% of household growth from 2025 to 2035, according to the 2017 State of the Nation's Housing report published by Harvard University's Joint Center for Housing Studies.

While millennials are less likely to form households compared to previous generations, they will nonetheless sustain demand for rental and owner-occupied housing as they age into their late 20s and early 30s, according to the report.

However, the housing sector does face hurdles. Millennials have more of an interest in living in urban centers than their predecessors did, and providing housing for this demographic in their desired locations at an affordable price will continue to be a challenge.

Low incomes combined with high housing costs in many major markets have prevented many millennials from living independently, according to the report. The median personal income of 25- to 29-year-olds was $27,100, up 10.6% from $24,500 in 2011, but still down compared to the $30,300 reported in 2000.

Overall, Harvard's study found that just 39% of renters made enough money to afford a house payment in their community, and only 45% of renters living in the country's metro areas could afford the monthly payment on a median-priced home in their cities.

In addition, policies by the federal government to reduce immigration would, if they are passed, weigh on household growth.