CHICAGO—Although much of the talk about the economy has revolved around the stronger employment numbers, the lack of robust new construction in the single-family market has hobbled the recovery. But Mesirow Financial's chief economist and senior managing director Diane Swonk notes in her just-released economic report that those solid employment numbers have encouraged more household formations, and in 2015 this should lead to more new construction in the single-family and multifamily sectors.

One worry for many observers was that the impact of the Great Recession on the rate of household formation would be more or less permanent, as the Millennial Generation adjusted its expectations downward. But Swonk now says that a good portion of that shift is “cyclical and that those tides are beginning to turn.”

Household formation began to surge in 2014, she notes. There were nearly 2 million more households in December 2014 than the previous December, the largest year-over-year increase since July 2005. Rentals still account for most of that increase. “It is only a matter of time, however, before some of these new households decide to buy.”

“There are clear signals already that the dream of homeownership remains very much alive,” according to a new study by the Joint Center for Housing Studies at Harvard University. “Attitudinal surveys recently conducted by a range of different organizations show strong and continued interest in homeownership, even among young adults.”

And according to the 2015 forecast by Mesirow, housing starts will rise at a double-digit pace to 1.14 million. The market has not hit the one-million mark since 2007. Furthermore, “single-family starts are expected to show signs of life, while the multifamily market remains strong.”

A lot of good things should happen all at once in 2015, Swonk adds. The employment gains should continue and combine with falling energy prices to increase disposable income. And Mesirow expects mortgage rates to remain near historic lows despite a slight increase in short-term rates by the Federal Reserve. “Buying is now cheaper than renting in many urban markets, which is further tipping the scales in favor of owning instead of renting.”

Another harsh winter has smothered new construction, especially in the South, Swonk notes, but in the coming spring the housing market should begin to pick up momentum. In fact, Mesirow now predicts that single-family starts will jump 14.4% this year to 739,000. And the average price and size of a new home should fall in 2015, as builders construct less-expensive homes farther from city centers, a big shift from recent years when builders chased affluent buyers. The multifamily market should also strengthen, with starts jumping 12% to 398,000. “That would be the strongest year for the multifamily market since 1988.”