Wednesday, June 6, 2012

MARKET TRENDS: Aging Baby and Echo Boomer to Impact Housing

The demographic shift of the aging baby boomer generation will soon have an impact on the nation's housing market.

It's not all aging baby boomers either. Their echo boomer children will also significantly impact trends.According to the National Association of Realtors researchers and the new report "Demographic Challenges and Opportunities for U.S. Housing Markets," the next two decades will see a surge in our nation's senior population by 30 million. We are an aging nation.

The echo boom generation includes nearly 65 million people born between 1981 and 1995. NAR's analysis illustrates the potential impact of economic and housing policy on this generation's demand for housing as they come of age.

How this will affect housing is simple. The report indicates that as adults enter their sixties, the pace of household dissolution begins to exceed that of creation. This mean more homes saturating the market. "It will also swell the number of dwellings released into the housing market over the next four decades, creating new challenges and opportunities for housing policy."
Two regions are predicted to feel this pressure more acutely. "The Northeast and Midwest are most likely to see a large number of older homeowners selling their homes to younger homeowners as the baby boomers age," said NAR Chief Economist Lawrence Yun. "This increased supply could mean additional buying opportunities for echo boomers. That generation will absorb 75-80 percent of the available inventory of owner-occupied housing by 2020."

While this may be the case, the report also indicated that echo boomers have suffered setbacks due to the recent economic downturn. They have been hit "hard by the recession as
they've entered independent adulthood. This has reduced their income and employment and limited their ability to form households and attain homeownership." Will they be able to afford these homes or will home prices need to correct even further?

"Housing, jobs and the economy are inextricably connected," said Yun. "A strong recovery with favorable housing market conditions would encourage substantial growth in echo boomer households, which would help absorb the current vacant inventory and stabilize conditions for residential construction. Under a reasonable 'middle' recovery scenario, approximately 12 million new households will be formed over the next decade, requiring construction of up to 15 million new housing units."

Over the long term the imbalance discussed in the report shouldn't persist. It notes that "at pre-crisis trends, the U.S. population is expected to grow to 403 million by 2050 - an increase of nearly 93 million from the population in 2010 and about the same as the current populations of California, Texas, New York, and Ohio combined."

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