Today’s release of August home sales data reveals what is essentially a market bouncing along the bottom. Over the last two months sales have remained only slightly below the all-time low that was set back in May 2010 in the immediate aftermath of the federal homebuyer tax credit’s expiry. In addition to weak sales, homes are staying available on the market for a long period of time—a median of 10.3 months as of August 2010. One of the biggest problems plaguing housing demand has been the very low pace of new household formation. According to newly-released data from the Census Bureau, household formations over the last two years are more than three times slower than the average annual pace observed during the 2002-07 time period. Indeed, the 357,000 net gain in households last year was the smallest annual increase for the U.S. since 1947. Until the labor market gains momentum and more substantial job growth is generated, household formations will remain weak, which will in turn keep the glut of unsold homes at high levels.

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