Demand for Housing

 
It is clear there is a true “pent-up” demand for housing.  
The demand for homes or rentals will come from the two primary generations – Baby Boomers and Millennials which represent over 50% of the population.

Over the past 6-years, the economy has played havoc with housing since 2008.  To simplify the demand side for housing is impossible to do but I will try never the less. Until the bullet points are addressed by the industry, we will continue to have pent-up demand.

Baby Boomers

            Sandwiched between the Greatest Generation and Millennials as care givers

            Postponing retirement due to loss of financial reserves during the deep recession

            Retiring in-place close to family

Home equity has not fully recovered

Downsizing to a new home is less of an option due to the lack of availability. Then why move from an older house that could possibly be paid off to another existing home?

The great recession and lackluster recovery has changed the way baby boomers view their real estate needs and goals. We will see more baby boomers work longer and retire in-place. Baby boomers will postpone their housing decision until the economy gains positive momentum. 

           

Millennials

More than a third of American millennials are living at home with their parents, according to a Pew Research Center study (currently about 21.6 million are living AT HOME!

A driving factor: Declining employment. Last year (2013) just 63 percent of young adults in that age group were employed, down from 70 percent in 2007.

An analysis by USA Today of Census Bureau data found that between 2005 and 2011,

25- to 34-year-olds experienced the largest drop in homeownership of any age group

According to Census Bureau data, only 36.3 percent of those younger than age 35 owned a home at the end of 2012, down from a high of 43 percent in 2006.

According to the Pew Research Center - As of March 2013, only about one-in-three Millennials (34%) headed up their own household.  In 2009, 35% of 18- to 32-year-olds headed their own households

The absence of any increase in household formations among Millennials is significant because it contributes to lackluster apartment and housing demand as well as the demand for household furnishings, etc. that goes along with independent living.

 

In 2013, Pew said the average Millennial with a bachelor's degree earned $45,500.

With their average salary of $45,000 and even with some debt, most Millennials could afford to purchase a home under $200,000 and manage a monthly mortgage payment with the TODAY’S interest rates.

Unfortunately, home prices are rising and interest rates will also be rising much faster than their income. Their most significant hurdle is the down payment and cash needed to close! I believe housing will leave this generation behind even more so than their desire NOT to own a home.

If our economy is 70% consumer spending and our most significant purchase is a home, the future for housing is even more troubling if the Millennials are NOT thinking a home is more than just shelter and if baby boomers postpone real estate decisions.

This pent-up demand will keep a “sellers-market” for years to come and prices will continue to rise. Homes will still be purchased but not at the rate in which we need to in order to keep pace with the population increase.

Housing’s Next Phase – the Fed has to micromanage interest rates to control inflation. This micromanaging will not lead us out of this continuous recessionary period. This vicious cycle will persist until significant changes are made to our national policies.

Housing will bump along the bottom until interest rates are back up and the economy has found a new foundation. Until that time, housing will be sitting in the bleachers waiting for the opportunity to catapult our economy to the next level.         

Don’t misunderstand my view. There will always be a demand for homes but the level of interest will not reflect historical rates for many years to come.

There is a direct correlation with jobs and homes. It doesn’t take an expert to tell us that as our participation rate in the labor force decreases so will the homeownership rate decrease. Regardless of interest rates, family formations, etc.