For those who have been wondering why, in the wake of so few new homes being built, there still seems to be so many homes on the market, The Real Story has an answer: even though there have been fewer starts since the beginning of the Recession, there have also been fewer new households set up since the 1940’s.

Between March of 2009 and March of 2010, there was an increase in households of only 357,000—the smallest increase since 1947. Between 2008 and 2009, the increase in households was only 398,000. Compare these numbers to the more robust annual increases of 1.3 million every year from 2002 until 2007 and you can see a trend.

Interestingly, in this Recession, divorce rates have decreased. So have birth rates. But the biggest factor in the decrease in household formation is in kids coming out of college and moving back in with their folks, and in young homeowners losing their homes to foreclosure and coming back home with THEIR kids to live with their parents.

In a healthy market, builders need to add 1.5 to 1.7 million homes a year to meet the underlying demand. That demand is created by the need to replace homes lost to fire and natural disasters, age and wear (about 250,000 units); to second home demand (about 50,000 to 100,000 units) and to household formation increases (about 1.3 to 1.4 million). It will be interesting, as the results of the 2010 census are released next year, to see just how many families were doubled up under one roof on April 1, 2010.

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The experience of buying a home has changed enormously over the last few years, and not just because it’s an extreme buyer’s market. Real estate economist John Burns points to the Internet as a powerful—and empowering—tool in the process. He believes that people will not visit a model home these days unless they are assured it’s a good use of their time.

We also asked John about price stability. He predicts that prices will trend down again next year, because more REO product will become available and there will be no tax credit. People wanting to sell will find what their home is really worth today, which is probably about 10 to 20 percent less than they think.

Will they stay in their present home and wait for prices to trend up again? According to John, it’s more likely that their decision-making is based on whether or not they really want to move. People still get married, have babies, get divorced and want to live in a certain neighborhood. If there’s a compelling enough reason, they’ll make the move.

The California Building Industry reported that housing affordability increased slightly in Q3 in all 28 of California’s metropolitan areas. The HOI (Housing Opportunity Index) indicated that a California family earning the median income could afford 61.1 percent of new homes that were sold.

Liz Snow, CBIA’s President and CEO, said that although the state is still home to seven of the top 10 least-affordable markets in the nation, affordability levels continue to remain high by California standards.

California’s least affordable counties? San Francisco, San Mateo and Marin. Its most affordable are Stanislaus, Yuba and Sutter counties.

These affordability figures coupled with the current record-low interest rates add up to a great opportunity with one big proviso: potential homeowners will need to feel confident in their income. Yesterday’s report that  private sector job growth last month was the largest in three years is a step in the right direction.

As the results from the 2010 US Census are released in the months—and years—to come, homebuilders will get their first view in a decade of the composition of the American household. What groups are growing? Are any groups shrinking? Any new household types on the horizon? Are those Millennial kids ever going to move into a house on their own?

In a blog published recently on AdAge.com, founder of American Demographics magazine Peter Francese makes the argument that there is significant pent-up demand for housing that dates back to the beginning of the recession. He cites a March survey from the Census Bureau that shows a household formation increase of only 0.3 percent from 2009—about one third of the annual increase reported in the years before the start of this turbulent economic cycle.

He says, “As of March, 12 million American families are living with 21 million of their adult children, a record high. One fourth of those ‘kids’ are age 25 and older. As the economy improves, most of these adult children will probably…leave the nest and jump start the housing market’s recovery.”

The national picture for new home construction still seems bleak. The Commerce Department reported today that construction of new homes and apartments fell 11.7 percent in October. When we dissect that figure, we find that apartment construction fell by more than 40 percent and construction of single-family homes fell by 1.1 percent.

In California, this continues a downward trend begun in September, when housing production decreased for the first time in five months.

Liz Snow, CBIA’s President and CEO said the September numbers were a clear indication that the housing industry still has a ways to go before getting back to healthy production levels.

“As the economy continues to struggle in the wake of the foreclosure crisis and double-digit unemployment, it could be some time before the housing industry sees any meaningful recovery,”  said Snow.  “Creating jobs and restoring our state’s economy should be top priority for our lawmakers. The sooner we get job-generating home construction back to healthy levels, the better for the economy.”

What does all this mean for the consumer? Lower inventories and fewer choices well into 2011.

The September home sales figures are in and MDA DataQuick just published the report. It gives a picture of a market that’s still mired in lack of consumer confidence and a scarcity of credit.  Here are some noteworthy statistics:

• Interest rates are historically low, and yet home sales fell for the fourth consecutive month in September.
• A total of 6,334 new and resale houses and condos closed escrow in the nine-county Bay Area during September, a decline of 5.4 percent from August of 2010 and down 19.6 percent from September 2009.
• The Bay Area’s median price paid for a home (single family and condos) was $395,000, up 2.6 percent from $385,000 in August and up 8.2 percent from $365,000 in September 2009. This is 40.6 percent below the $665,000 peak in June/July 2007.
• Looking closely at the nine Bay Area counties, the highest median price was in Marin at $702,500; the lowest median home price was in Solano County at $205,000. The highest increase over September of 2009 was in Santa Clara County at 11.10 percent and the biggest decline in home prices was in Napa County at -6.4 percent.
• Foreclosure resales rose to 27.9 percent of the resale market.
• Government-insured FHA loans accounted for 25.1 percent of all home purchase mortgages in September.
• High-end sales continue to be hampered by the credit crunch, as adjustable rate mortgages and jumbo loans are difficult to obtain.
• Absentee buyers—monthly investors—purchased 18.8 percent of all Bay Area homes sold in September. All-cash purchases accounted for 25.5 percent of sales in September; the decade long average for all-cash sales is 11.2 percent.

What does it mean? According to John Walsh, president of MDA DataQuick, “The sidelines are getting awfully crowded in this housing game. They’re lined with people who have the ability to buy now but are waiting for the right moment, and with people who have the means but lack job confidence. Then you have the folds who don’t have the equity, don’t have a job or can’t qualify for the larger, so-called jumbo mortgages that were once so common in the Bay Area.”