How an Aging US Population Will Drive Home Prices Higher

By Walter Kurtz, Sober Look

It is a well known fact that homeownership in the US has been on a decline, a trend that started even before the financial crisis. Now Moody’s predicts this trend will begin reversing next year.

Dotted curve is Moody’s projection (Source: Moody’s)

Their explanation has to do with demographics. Baby boomers are moving into the highest homeownership group by age, while “echo boomers” (children of baby boomers) are getting to the age at which they are significantly more likely to own a home than the younger age group.

Moodys: – Demographics will also generate much of the gain in homeownership over the next decade, with a growing share of households aging into the highest homeownership groups. Baby-boomers are aging into the 65 and older cohort, the age group with the highest homeownership rate, while echo boomers have entered the 30- to 45-year-old cohort, which traditionally makes the largest gains in homeownership.

Historical data tends to support this assumption. The jump in ownership from the 25-29 cohort to the 30-34 is the sharpest – which is where echo boomers are now transitioning.

Source: Moody’s

 

Sober Look

Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.

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Comments

  1. Interesting! I didn’t know I was an “echo boomer” but I am at the cusp of transferring to the higher home ownership bracket. I do not see myself as a homeowner within the next 5 years.

    It would be interesting to see how the proposed increase in home ownership actually pans out and how much is the result of demographics vs. low interest rates.

    Thanks for the blog! Just discovered it this week and have been following.

  2. Housing doesn’t follow demographic trends. It follows the rate of inflation and the growth of incomes. Housing can’t really exceed the rate of inflation since it makes up such a huge component of incomes/spending. Inflation is still very low and incomes are anemic so anyone looking for a housing boom is likely to be disappointed.

    • Good points, but I’d actual expand that to say that housing can be also driven by an accumulation of debt above and beyond income. I’d say that’s what we saw last decade as incomes haven’t significantly grown in some time.

  3. 51% of women under the age of 30 who had a child last year were not married. I don’t think home ownership will be going up. It will be going down to record lows. Not married with a child, not likely to afford a home.

      • Yes, I think a more meaningful statistic would be how many fathers are living in the same household as their young children.

        In any case, I’m a man in my late twenties and I don’t want to get married, ever (it’s a scam). Buying a house together with another party is pretty similar, in case we split up I’ll lose a lot. I doubt I am the only one thinking like that.

        • Marriage is a great thing. Look for the right partner and you will not regret it.

          • You are a hopeless romantic ;) I look at it from a risk management standpoint, if it has a 50% chance of failure, and that failure can cost me not only half of my assets but a significant portion of what I make in the future, it’s not a contract I would enter.

            • Hi, Nils
              So you have a 50 percent chance of future happiness, or a 100 percent chance of winding up alone and miserable.
              :)
              Seriously … man up, get married and raise a family. Don’t let time slip away from you.

        • Spot on, Nils. As a divorced man, I can tell you the risks aren’t worth it and the rewards are …nearly none! Stay single, and pick whatever flowers you may.

          • You can’t have an equal relationship if one party can hold all you ever worked for and your whole future and maybe your children over you.

    • You apparently do not know much about the female psyche. A home represents security, and is very high on the list of priorities of most women.
      People usually find a way to get what they really want.

  4. Retirees are faced with net worth declines from low returns on savings from ‘financial repression’ and from the decline in value of their existing homes. This is quite different from most historical periods. Most ‘echo boomers’ seem to have squandered any savings in the orgy of debt financed consumer spending before the crash. The ‘historical’ stats therefore are pretty useless and remind me of Ben Bernanke telling us housing was not in a bubble.

  5. Seems odd to suggest that boomers who do not currently own a house would retire — with lesser income — and then go out and own a home. As for the echo boomers, time will tell, but there is evidence to suggest they will not behave the same way their parents did. They have smaller households, move around more and appear to be renting.
    This type of demographic reasoning is flawed at best. It reminds me of the auto manufacturers who believed since older people drive Cadillacs, young people will grow up and want to buy a Cadillac. Tastes and habits change.

  6. fyi=More boomers are selling and downsizing and there will not be enough echo kids to buy whats available(over development going on right now)…deflation in housing. All those home equity loans are resetting for the next 3 yrs also(payments most in retiremnet can’t afford)…if housing ads 30% to gdp what ya think is gonna happen? Over supply w high unemployed and 90% are cutting expenses= deflation and depression…happens every 40 yrs..like a war every 11 yrs and a market correction every 4 yrs. RE cycles run 20 yrs..so downtrend is in the 5th inning.

  7. Walter Kurtz needs to sober up about the echo boomers being a driver of future home buying. The fact is the echo boomers are drowning in student debt http://pewresearch.org/databank/dailynumber/?NumberID=1599

    With the echo boomers already being debt slaves for life without a mortgage and having very little prospects of full time employment since companies will now only be hiring part time employees as a consequence of the Affordable Health Care Act http://globaleconomicanalysis.blogspot.com/2012/10/prepping-for-obamacare-olive-garden-and.html

    Then throw in the fact that echo boomers have virtually no savings to speak of http://20somethingfinance.com/average-retirement-savings/ and that banks are tightening lending standards, it’s a pipe dream to think this demographic group will drive home prices higher.

    Also one must consider the emotional impact of seeing their parents or their friends parents lose their homes to foreclosure and all this means housing is dead for a very long time!

  8. Two points:

    1. The Boomers will largely retire to the same areas their predecessors did – if they can.

    2. 95% of them will build new homes. I live and invest in real estate in an area that is dominated by retirees and the great majority of them come here with plans to build their dream house. They almost NEVER buy existing homes. As the Boomers retire they will certainly boost the new home market but anyone expecting them to pump up resales is full of false expectations. And all those “dream houses” down the road ten years are on the market for a fraction of their construction costs.

  9. let’s see, wages declining across the board, 40% of americans w/less than 500 in the bank, record college debt and grad unemployment, record numbers on food stamps, record numbers out of the work force, record legal immigration and the older population (boomers you speak of) with no money for retirement; if they’re house-rich and cash-poor, that house is being held or sold, certainly no new buying. housing will be an investor play only once prices stabilize, which will be long after the current bounce fades. housing investors make up 12% of the real estate purchasing population, so the economic situation of the country must begin to stabilize (things mentioned above need to show improvement) before a rental investment will be safe enough to not drop in price and erase whatever profits gained.

  10. I have to agree wholeheartedly with the majority of the previous posts. Mr. Kurtz’s analysis is larded-up with historical assumptions that simply don’t line-up with modern socioeconomic facts. Consumer debt, from mortgages, HELOC’s, education, medical expenses, auto loans and credit cards are near, or at, all-time highs. Median U.S. incomes continue trending lower. Toss-in the plight of retirees who’re relying on fixed-income or pensions and living on ever-shakier ground, or if the Fed loses it’s grip on inflation and interest rates, we’ll see housing affordability take another direct hit. In summation, I’m just not seeing how Mr. Kurtz’s calculus overcomes all these challenges to drive real estate prices ever-higher.