The number of households headed by someone under 35 a prime rental group expanding faster than the overall population.

The key to the housing outlook is household formation. As defined by the Census Bureau, a household is formed when one person takes separate living quarters, or when two or more people do, regardless of whether those people are married or unmarried, and provided that the quarters aren't in an institution, for example, a prison, nursing home or school dormitory.

The great recession of 2007-09 halted the growth in the number of households led by people under 35. The financial stress also led to the dissolution of some households that those in this age group previously had formed. Net result: The number of younger households fell, even though the ranks of younger Americans continued to increase.

Increase in Renters Rental Rates

Demographics - the home-ownership rate tends to rise with age. For example, while the overall U.S. rate is 67.2%, the rate for households headed by someone under 35 is just 38.9%. Thus, whenever the age distribution of households tilts in favor of younger adults, the overall home-ownership rate declines. That happened in the early 1980s, when young baby boomers began to form households.

There seems to be substantial growth in households formed by people under 35, who mainly rent rather than own. Worsening the shift will be a decline in the number of households led by people 35 to 49 years old the very ages when there is normally a huge jump in ownership. The market does expect a rise in households led by people 50 and older, but the boost to ownership from this won't be great. Home-ownership rates tend to level off when Americans reach their late 40s and early 50s.

The American dream of owning a home is still very much alive, but it will be no more than a dream for a growing number of people over the next five years. That's bad news for home builders, who already have big troubles, as June's reports on housing starts, existing-home sales, building permits and unsold-home inventories showed. But it is good news for anyone renting out a home, apartment or condo, or any real-estate investment trust specializing in residential rental properties.

Most U.S. households own the dwelling they live in, and that isn't likely to change. But demographic and economic forces, together with some perversities of government policy, are combining to push the share of ownership back to where it was in the early 1990s. Already, in the wake of the housing bust that brought on the Great Recession, the share of U.S. households owning homes has slid steadily from 69% at its peak in 2004 to 67.2% in this year's first quarter. And the rate is likely to fall to its 1993-94 level of 64% by 2015.