The Housing Market projections to 2050



What is the housing market going to look like going forward to 2050?  Projections are a fun statistical way of making major mis-calculations.  It is still worth looking at what some of the obvious conditions going forward may be.

The Bipartisan Policy Center put together a paper on the future of the national housing market.

 

The Supply:

As the Baby Boomers begin to retire and die, they will be releasing their housing units to the market.  Most of these will be owner occupied housing.

  • 2000-2010: approx 10.5 million housing units (net release of housing unit by Baby Boomers)
  • 2010-2020:  10.6-11.3 million housing units (net release of housing units by Baby Boomers)
  • 2020-2030: 14.4-15.0 million housing units (net release of housing units by Baby Boomers)

Owner-occupied units will account for about 80 percent of the releases, and most will be single-family detached dwellings. Total demand for new housing in the coming years is difficult to judge, but it is certain that the release of senior-occupied units will account for a growing share of the total inventory of housing stock while new construction will constitute a declining share. The likely consequence is that growing numbers of states and metropolitan areas will experience softening market conditions and weak demand for new construction.

The paper goes on to discuss the nature of the housing that will be released.  The main points are that these single family homes were built when energy was cheap, and financing was easy, and the economic future looked bright.  In short, they are suggesting that there will be no need for these big suburban homes and people will want to live closer into the central city.

While there is some merit in their points, I disagree with some of their premises.  The main reason I disagree is the baby boomers aren’t this predictable, they will zig when we think they will zag.  I also disagree that buyers prefer smaller homes, but this is a subject for another post and discussion.

The Demand

The demand is harder to pin down and this paper discusses 3 scenarios of economic growth and what might happen with the absorption of the baby boomer homes.

Basically there are 2 segments that will be absorbing the baby boomers homes; The Baby Bust generation (my generation, generation X) and the Echo Boomers (Millennials, Generation Y).  Since Generation X is the generation that everyone overlooks primarily because of their small numbers, the paper focuses on the Millennials.

This paper seemed to overlook Gen X and Gen Y soldiers are returning from war.  I believe they will be a market force once they are able to pick up with their lives again and focus back in family and career. Many are starting over and it will take time for them to become  a force in the job and housing market.

This paragraph from their paper raised my eyebrows a bit:

Echo Boomers have been hit hard by the recession. In fact, even before the recession they had experienced weak or no real income growth since 2000. About 22 percent of those 18 to 24 years old in 2010 lived in poverty. And in another grim statistic, the median income of people 15 to 24 years old dropped nine percent between 2009 and 2010 alone. Nearly half of 25- to 34-year-olds who had moved in with family and friends to save money would otherwise have lived below the poverty line…  …

Other factors, however, could inhibit household formation and homeownership. Young adults carry high levels of credit card and student loan debt; even young people who already had formed households had higher debt loads in 2009 than people of the same
age 10 years earlier.31 Rates of marriage declined in the 2000s from 8.2 per thousand to 6.8 per thousand..

Page 14

My thoughts from what the Millenials have been through is that this generation may actually become a 180 from the Baby Boomers and more in line with the WWII generation or Depression era generation.  Meaning they may become far less materialistic and a lot more fiscally conservative going forward.  Thoughts?

Conclusion:

There are a couple key points I took from this, although I am still digesting a lot of this.

  1. Reading between the lines – there is approx 100 million more people over the next 38 years…  …that’s approx 1,196,172 new households per year. (they have to live somewhere!)
  2. Housing Policy (regulations etc) and Economic conditions going forward is going to be the deciding fate of what happens with homeownership going forward.

 

 

 

photo credit: The U.S. Army via photopin cc

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Realtor. Twin Cities Area specializing in New Construction, Development and Investment Properties.

Comments

  1. says

    Craig, This requires some heavy thinking to prognosticate that far-out into the future, make my brain hurt. I’m sure anyone 10 years ago would have had a hard time predicting the real estate market today.

    • says

      I hear you.. This report is what will help shape housing policy in Washington. It is quite frightening when you think of it in those terms. Where I struggle with it is there large generalizations and it is difficult to look at the market in those simplified terms because the market is actually made up of a lot smaller markets that are unique.
      There are some key points, but the theme is that housing should be made in the central corridor and houses should be smaller and more energy efficient. Those are the policies I see coming from this paper…