According to just-released data from the U.S. Census Bureau, household formation bounced back to 947K in 2012 compared to 648K in 2011. However, once again, the homeownership rate declined over the last year given the addition of 1053K new renters and the decline of 106K homeowners. Such a composition of household formation is biased towards the rental option, and hence is less favourable for economic growth given that it slows the recovery in home prices and has lower spill-over effects on the economy (e.g. renovation). However, as today’s Hot Chart shows, thanks to the increase in household formation, both rental and homeowner vacancy rates continued to drop reaching multi-year lows in 2012. With both rates back to pre crisis level that bodes well for continuing improvement in housing. Shrinking inventory should increase price rent and stimulate demand for new home construction. Given the recent improvement in the U.S. labor market, particularly with regards to fulltime jobs, we expect housing starts to increase at least 25% in 2013.