Construction workers build a new home in Ashburn, Virginia
Photo by Paul J. Richards—AFP/Getty Images
By Chris Matthews
December 12, 2014

The American economy lives by the housing market and dies by the housing market.

It was a subprime real estate bubble that plunged us into the worst recession in generations, and the lack of a housing comeback consigned the economy to a sluggish recovery.

But eight years after the market topped, it looks like the worst days are behind us. Prices have recovered to pre-bubble norms and, finally, it appears as if Americans are starting to form households much closer to the rate that they did before the crisis. Neil Dutta, head of economics at Renaissance Macro Research, pointed out in a note on Thursday to clients that household formation in 2014 through September is already at its highest rate since 2005:

This is big news because even though home prices have recovered strongly, the level of new housing construction has remained at recession-like levels:

US Housing Starts data by YCharts

Slowing population growth partly explains why the construction industry isn’t building as many homes as it did during previous recoveries, but much of the trend stems from the fact that the Millennial generation now coming of age doesn’t have the same economic opportunities as members of preceding generations. This has resulted in folks doubling up, either by living with friends or family, and low demand for new homes.

That’s why the news that household formation is springing back is so good. One can’t say for sure from the data whether the spike in new households is a result of improving economic conditions for Millennials, but there’s evidence that this is the case. As Dutta points out, the employment rate for folks aged 25 to 34 has grown 2.8% over the past year, about 29% faster than the overall employment rate.

The latest data dovetails nicely with a prediction from realtor.com’s Jonathan Smoke, which Fortune published earlier this week. He argued that 2015 would be the year that Millennials start making a big splash in the housing market, as they leave their parents homes and strike out on their own. It looks like that process may have already begun.

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