Demographics and the Housing Market

[Beet]

I am generally pretty pessimistic, but it seems to me that some demographic trends may help provide support to the housing market in the medium to long term:



According to this chart the bulk of baby boomers were between 35 and 45 in 2000. That means they won't start hitting retirement age until 2020. Yes, the leading edge of baby boomers will start hitting retirement age before then. But this cohort is smaller than the "echo boom", the cohort that was age 5 to 20 in 2000, the children of the baby boomers. They are hitting ages 15 to 30 in 2010, which is about the prime age where you start looking for a home. Right now, the economy is depressing this group's demand along with everyone else's (the unemployment rate for fresh-out-of-college is around 14%), but when the economy recovers, there will be a huge sudden demand for housing from echo boomers, and this could finally stabilize the housing market. This may be sooner than we think.

[○∙◄☻¥tπ[╪AV┼cVê└]

Housing values need to drop more around here. Prop. 13 can probably be thanked for making them so expensive.

[Sam Spade]

I didn't know 15 year-olds bought homes.  Has FHA started loosening guidelines again. 

In all serious, I think you need this group to reach more of 25-40 year old (maybe 20-35, but I lean towards older) age status before they start having impact (I think the baby-boomer impact on everything started in the early 1980s, which would fit time-wise about right).

Also, given the excess capacity out there and general drain of the baby boomer population itself, you probably need a greater population coming into being than the baby boomers to have impact.

JMO, of course.

[opebo]

Each successive generation will have a lower and lower percentage of members who can afford to buy a house, due to the reduction in worker pay.

[TeePee4Prez]

Housing values need to drop more around here. Prop. 13 can probably be thanked for making them so expensive.

I thought we had it bad, but yeah who buys these $800,000 rowhomes with nothing to them in San Fran?  What is the city full of big shot executives and lawyers?  You guys have a Housing price to income ratio of 7.0.  Anything above 3.0 is considered unaffordable.  Philadelphia is 4.0.  Difference between Philly and SF is you guys have very little room to build- you got mountains and ocean right next to each other.  Philadelphia can develop infinitely north, east, south, or west.  That's why CA's Central Valley dropped precipitously because it enver should have got as bad as it did.

Another factor we have and you guys may have a similar one, but I can foresee a precipitious drop here because of a continuing Baby Boomer exodus from the high tax/moderately high cost of living Southeast PA/South Jersey area to the South Atlantic once their kids are grown.  I worked on the tax returns of quite a few people who have done this.  I don't know what J.J or bullmoose thinks but Philadelphia still has a way to fall as well and the fall will definitely lag behind other areas' recovery because of this.         

[Beet]

I didn't know 15 year-olds bought homes.  Has FHA started loosening guidelines again. 

In all serious, I think you need this group to reach more of 25-40 year old (maybe 20-35, but I lean towards older) age status before they start having impact (I think the baby-boomer impact on everything started in the early 1980s, which would fit time-wise about right).

Also, given the excess capacity out there and general drain of the baby boomer population itself, you probably need a greater population coming into being than the baby boomers to have impact.

JMO, of course.

What I'm talking about is the delta, so it is the leading edge that matters. I mean, if you had 3 million people entering household-formation age (say, 25) annually in the past 10 years, and another 3 million in the next 10 years, then who cares? The amount of future demand compared to past demand is unchanged, and there's no story. It's precisely because the leading edge of the echo boom (aged 25-30) is now entering household formation age that it represents a shift from the past, and a new wave of demand. Perhaps this will make it clearer:



The echo boom's (delta) started approximately in 1979, and the number of births rose until about 1982. The second wave built on the first wave, began around 1986 and peaked at 1990. Those born in 1980 are turning 30 in 2010. So your estimate of 25-40, or 20-35, regardless, are good estimates for first purchase of homes. I do think that 25-35 is the prime period, because people need to be out of school, have formed a household, and have a few years' savings at least before this happens.

I'm not saying this will result in a new boom, but it will be what eventually stabilizes the market, IMO. Of course, there are numerous obvious short term factors right now that indicate the housing market (at least prices) will continue to decline or stay at depressed levels. The only point is that there is pent up demand being built up now that will eventually be seen. You might see the effects within 2-3 years.