Higher Birth Rates Coming

The millennial generation, now aged 18 to 36 years, is beginning to drive higher birth rates, reports the National Center For Health Stats. And that means more households being formed, which will ultimately create a higher demand for housing. Actually, four million births per year was breached in 2007, and births then declined due to the Great Recession. But the millennials are back above four million annual births again.

Why? Because those millennial mothers already outnumber their baby boomer moms, though having fewer babies. The result will be a huge surge in economic growth, as population growth has historically been a major ingredient of GDP growth. Even Barron's has predicted that millennials could spur three percent plus economic growth for much of the next decade, as the baby boomers did in the 1960s and 1970s.

And housing construction is surging -- no coincidence, given the rising demand for housing of any kind -- rental as well as for prospective homeowners. Led by a strong jump in single-family production, nationwide housing starts inched up 0.2 percent to a seasonally adjusted annual rate of 1.206 million units in July, according to newly released data from the U.S. Department of Housing and Urban Development and the Commerce Department. This is the highest level since October 2007.

"This month's drop in the more volatile multifamily side is a return to trend after an unusually high June," said NAHB Chief Economist David Crowe.

While multifamily production has fully recovered from the downturn, single-family starts are improving at a slow and sometimes intermittent rate as consumer confidence gradually rebounds. Continued job and economic growth will keep single-family housing moving forward.

Births had declined for five consecutive years prior to increasing in 2013. They are about 7.7 percent below the peak in 2007 (births in 2007 were at the all-time high -- even higher than during the "baby boom"). "I suspect certain segments of the population were under stress before the recession started," says Calculated Risk's Bill McBride, "-- like construction workers -- and even more families were in distress in 2008 through 2012. And this led to fewer babies."

The above historical graph dates back to 1909, and the largest dip was before and during the Great Depression. It hit bottom in 1933, before beginning to rise again until it hit the baby boomer bulge of the 1950s and 60s.

This has to be the main reason home builder sentiment is at a 10-year high. The new home sector is increasingly a central source of strength for the economy and builders are increasingly optimistic, says the NAHB. The housing market index rose one point to a very strong 61 in August with the future sales component leading the way at 70. Current sales are at 66 with traffic continuing to lag but less so, at 45 for a two point gain in the month.

"Today's report is consistent with our forecast for a gradual strengthening of the single-family housing sector in 2015," said NAHB Chief Economist David Crowe. "Job and economic gains should keep the market moving forward at a modest pace throughout the rest of the year."

Single-family starts rose 12.8 percent to a seasonally adjusted annual rate of 782,000 units after an upwardly revised June reading while multifamily production fell 17 percent to 424,000 units. And rising single family starts is another sure sign that more families and households are being formed.

What age group is having the most births? It is women in their 30s. The preliminary birth rate for women aged 30-34 in 2014 was 100.8 births per 1,000 women, up 3 percent from the rate in 2013 (98.0). The rate for this group has increased steadily since 2011. The number of births to women in their early 30s also increased in 2014, by 4 percent.

The rate for women aged 35-39 was 50.9 births per 1,000 women, up 3 percent from 2013 (49.3). The rate for this group has increased steadily since 2010. The number of births to women in their late 30s increased 5 percent in 2014.

Need we say more about the rising birth rate? All signs point to another upsurge in new household formation, the main driver of real estate sales and the concomitant sectors that aid and drive RE -- jobs in construction, insurance, professional fields and banking, for starters.

Could it be the real estate industry will help to drive three percent plus GDP growth for the rest of this year, even if interest rates rise slightly? Rates are still at record lows with the conforming 30-year fixed rate now dropping to 3.50 percent for 1.25 origination points, and purchase mortgage applications still up 19 percent year over year, reports the Mortgage Bankers Association.