These aren't incompatible. Household sizes are falling and number of homes is an input to population, so you can have residents moving out on net while prices increase due to the remaining residents being more wealthy. California is an entire state of ~40 million people where this happens: low and middle income families move out; high income families move in.

But household formation has increased, by a lot:

https://oregoneconomicanalysis.com/2023/10/26/household-form...

Which seems to imply that housing is not too expensive, if millennials are snatching them up...?

You're confusing increases in household formation with increases in homebuying.

You can create a new household without buying a house. For example, if you live with your parents as a 22yo, you and your parents count as one household. If you then move out and into an apartment by yourself, you are now your own household. But you haven't bought a house. As millennials age, more of them will obviously move out from living with their parents, which means increasing household formation.

In addition, you can expect homebuying to increase within a generation as that generation matures and earns more money. Of course millennials will be buying more houses when they're in their 30s than when they were in their 20s. That's to be expected. Something would be seriously wrong if that were not the case. But this doesn't automatically mean that housing is not expensive.