Excellent background analysis though. Thanks for the work, the trouble and the insight. Makes you wish/wonder if many in the industry are as thorough in market analysis and planning - particularly since it doesn't seem to show up in the normal business press.
As a suggestion for the next turn of the crank, and following along earlier comment exchanges, it would seem the basic problem(?) is dealing with the accumulated stock of new housing and it's relationship to demand. IF X unit would be required for pop. X people/unit and something like 1.5 * X were built then we'd have an overshoot that would have to be worked off. Didn't we put some guestimates of that in some comments a while back ?
In any case good luck - I'm sure we'll all look forward. BtW - why just New Homes - wouldn't the stock of existing homes go to alleviating some of the demand for housing ?
I would be very interested to hear more about your background. Your blog is my number one visit on the web for housing and economic info... and no I do not believe we are related.
Another thing I'm curious about is the elasticity of the demand... just because people desire their own housing unit, if things soften how much are those people willing to pay to achieve those desires?
Demographically we have two interesting groups here - adult children who might stay longer with parents if they can't afford their own place OR retired parents who for one reason or another can't easily afford their own place and move in with one of their kids.
In either case it could have a big effect on demand (both in units numbers & prices). Have you started to consider those variables? Say maybe as 'outer limits' of your base model?
I am trying to do the same thing -- estimate new home sales. While the Census dept housing inventory report (from the home vacancy report) has numbers that I don't always believe, the number of vacant homes for sale was just staggering in Q2. And when you look at regional data -- I assum you saw the Arizona Real Estate Center estimate for vacant SF homes in Maricopa Co. in the second quarter of this year vs. last yaer -- well, my goodness~
DaveL, dryfly and All, as you can probably tell this was mostly a stream of consciousness post - I was asking myself questions, and sometimes I'd find answers. How many total units are built each year? What demographic factors drive demand? Sometimes I was disappointed - how many houses are demolished each year, or otherwise taken out of the overall stock. I still don't know.
I'd like to know the total stock, but as Tom Lawler noted, the numbers from the Census Bureau seem off. Of course the number of vacant housing units is at an all time high - and that is part of supply.
I focus on New Home sales because there is a good historical record for that number, and a drop in New Home sales impacts the economy by the loss of construction jobs.
When it comes to working out the supply and demand, both rental units and existing homes are substitutes for New Homes. The good news for home builders is usually they are willing to lower their prices faster than existing home owners - so their sales should not drop as far as sales for existing homes.
As far as elasticity of demand, it is really hard to determine during a period when the markets aren't clearing properly. Historically real estate prices display strong persistence and are sticky downward. That is why we usually observe a significant drop in transaction volumes and a rise in inventories, before we finally see price drops.
While housing is very durable, it's not quite eternal. Is the natural lifecycle, combined with individual destructive events and widespread catastrophes like Katrina, completely negligible in statistical terms?
Commentary by John F. Wasik
"Sept. 5 (Bloomberg) -- When there are more home for sale''
thanhelp wanted'' signs, the U.S. economy may be mired in
recession.
Most gauges are confirming that the housing market has hit
the brakes and may be in a tailspin. Existing-home sales dropped
a more-than-expected 4 percent in July and the number of unsold
houses is the largest since 1993. New-home sales fell 22 percent
from the same month last year. And construction spending fell the
most in five years.
While higher mortgage rates and affordability concerns have
been the bogeymen in the current U.S. housing decline, little
attention has been paid to the combined demons of unemployment
and adjustable-rate mortgages."
.
.
.
Another variable to consider. If much of the excess stock is in say Miami, how does that affect say Birmingham.
Other things, I remember an article from 25 years ago, talking about communical living for retired folks.
Historically, during 99% of human history, 2-3 generations lived in the same dwelling, much smaller that current US homes. This is true of most humanity today in my opinion.
So figuring demand is going to be quite a task.
IMHO the drop in new home prices faster than existing stock prices may effect demand because of the underwater folks. As long as the fixed cost of moving(mortgage) and the variable costs(cost of moving plus commissions) is less than the sale receipts then the drop in new home prices is relativly a good thing. When those costs exceed the sale receipts, then the system will 'freeze' as existing home buyers cannot upgrade to a newer home regardless of opportunity and the only demand is brand new buyers who will be constrained by what I suppose are higher interest and greater restrictions on loans.
One of the important facts that seems to be missing from your analysis concerns the future effects on the housing market of Generation Y - born between 1981 and 2000.
In total numbers, this generation is as large as the baby boom generation. The eldest members are turning 25 this year, and the peak birth year of 1990 puts their peak member at age 16.
The average age of first time homebuyers is around 32, meaning most of Gen Y's oldest members are still renting, while the peak group is still in high school.
This generation will cushion the fall of home prices in the coming few years in my opinion.
No, I don't think it'll cushion the numbers. To begin - as you already noted - the leading edge is ~25, and they don't tend to start buying houses till they're ~32. That's seven years of delay.
Second, the peak -- the ones in high school -- are only now really paying attention. The next five years are going to be their formative years for expectations of housing. The lesson THEY will get is that housing doesn't always go up. For the current 32-40 year old group, housing always goes up, and it goes up so much that flipping is obviously a good thing. "Buy as much car as you need, and as much house as you can afford," is the credo I recall. For GenY it's going to be "Rent as long as you can, and only buy as much house and car as you need."
I'd be unsurprised to see GenY be a savings generation. Oh, not the current leading edge, but the current 8-17 year olds. But that's just my guess.
This generation will cushion the fall of home prices in the coming few years in my opinion.
But we have to get them off our couch first.
Seriously - I have three in that cohort. Among them & all their friends combined (talking multiple dozens of kids ages from 15-25) there is one or two real jobs among them all.
Now I don't expect the 15-20 year olds to be making real money yet though I was when I was 20... but these kids are facing a severe job market. Jobs 'yes' - good pay, security, benefits 'no'.
Most all (even with college educations) are bouncing in and out of their parents homes - they are lucky to have money to rent apartments let alone the ka-ching to buy.
And from what I can tell - talking to my peers with Gen Y offspring, I'm not alone.
And its not that the kids are lazy - no more than I was at that age anyway - its just that times have changed, again.
If housing were cheaper or jobs for young people better & more stable, I'd fully agree with your analysis.
I too have 3 in that generation. One is renting on the east coast of Florida, one just graduated from college and moved home for the time being, and the third is still in college.
My oldest was born in 1982, so is my data point for the oldest gen Y's. What motivates him is - his girlfriend, who wants a middle class life including a home. They are planning on getting married next summer. Homes are out of reach for them at the moment, but assuming they hang onto their jobs in the coming recession and home prices fall, they won't be out of reach in a few years.
The 32 median age for first time homebuyers is a red herring in my opinion, as there were many gen x'ers and even baby boomers who didn't buy until the last 5 years when interest rates cratered.
One near-term factor is that the big builders seem to have actually increased construction this summer, even has sales fell and inventories jumped. Apparently, this is true at the end of every cycle.
I didn't believe it when I was first told this, but I went to new home sales stats for July and found that if you add homes sold under construction and homes for sale under construction, the figure for July '06 is 10% higher than for July '05. So there is going to be a much bigger inventory overhang then is currently apparent.
In the longer term, I think one big change will be in the second (vacation) home market. Leveraging your main home to buy a second one for vacation, future retirement, etc., seemed like a no-brainer when values were increasing +10%/year. It's going to seem pretty foolish when appreciations are flat or falling. I predict areas full of vacation homes are likely to get severely whacked. So new home sales in those areas are likely to plunge. But since those areas are nowhere near areas of job creation, it might have a limited effect on total new home sales. It just might be really cheap to get a vacation home in a few years.
Please follow jm's advice. Your 25 year old might not have a mortgage, but there is an unmistakable data trend.
I charted home ownership over the past 50 years in 5-year age groups.
The young are not a top factor in the bubble, but a clear demographic growth of young home owners is present despite increased costs. Less than 15% of 25-year olds in 85, more than 25% today.
Another interesting trend is for the older. By the numbers, they are staying put. Ownership among the over-65 is up ten percentage points since 85. Boomers don't want those boney old coots moving in with them, and are willing to pay exhorbitant home care prices to prevent it.
Name - soon the boomers will be the boney old coots & the question is will they have the savings & resources to NOT end shacked up with their slacker Gen Y spawn? They'll all be fighting over the couch.
I'm not saying all will double up but I'm not comfortable looking at the demos alone without considering the means required to make wishes come true.
Also consider the main theme of w coast florida's post... that these Gen Y'ers will drive demand to sustain prices not just fill units. Its one thing to move out on your own - it's a whole other thing to move out with means to support current pricing trends.
Looking at income trends of the young Y'ers & savings rates for the boomers... I'm not ready to accept there will be sufficient means to support the current price appreciations in REAL inflation adjusted terms.
But then maybe Asia will continue to pump liquidity mana from heaven into the markets and we'll all be rich forever. And maybe not.
Our Gen-Y son is renting- finished college in 3 yrs has a job.(yeah!!)
Several groups of his friends are renting housing with about 10 friends living together in one house.
With high food and energy expenses, many are looking for even cheaper options than renting. Those high paying e-commerce jobs are gone. Though I know Gen-y's that have ivy league grad degrees too- they are renting and sharing with roomates- as the rents in WDC or NYC are unapproachable even with great starter jobs.
Above a certain point, housing becomes a luxury and not a necessary.
A 3 BR 2 BA house can be for one family or 3. The House I live in was formerlly rented by its owner. She lived in the Master BR, and rented 2 BRs out.
I expanded it by 3 additional rooms. In theory but against zoning rules I could have 5 tenants. So I think housing is more flexable than thought.
I am sure the house in back of me has 3 Hispanic families in it. The house to the East has had at least 2 families in it. This in a middle to upper middle class area.
Housing is going to depend on income increase not debt and from jobs other than housing to really expand.
Expecting desire from the potential customers is not enough.
I agree vader - I have NO IDEA how many live in the rental next to me (kids - good enough bunch but a large noisy bunch - hey but they share... want a beer mr dry fly?)
But I know the landlord showed up over the weekend & had a pow pow with them. I just think he wants an occasional head count & to be sure the guy on the lease is still there. We aren't talking the Taj Mahal.
Household size changes are largely a function of changes in age structure. When large cohorts of kids grow up, they form new, small households (1-2 persons). At the same time, the households they left shrink. Family structure trends such as increased prevalence of divorce and increase in long term single person households also have an effect.
In looking at demand, you also have to assume some existing housing will be removed from the stock for various reasons.
To drive demand nationwide, you need a bump in under 35 household formation. Whether they live in new or existing housing, they will still push demand up. Much of the new housing today is the move-up market, but you cant move up if you cant sell your existing house to a (typically)younger buyer. As others have noted, there will be a bump with the Gen Y or echo boomers, but that peak is still in high school. Based on the Census CPS table that jm linked to, households under 35 bottomed out in 2003 and have started to climb. In 2003, under 35 HHs were 1.7 M below the 1989 peak, and by 2005, were down 1.53 M from the peak.
Boomer birth peak 1957 HH under 35 peak 1989 32 years difference.
Baby bust bottomed out in 1973 - HH under 35 nadir 2003 30 years.
Echo Boom Gen Y birth peak 1990. Add 30 years and youre at 2020. So well need some housing by then. And immigration is part of the picture too.
Something I wonder about: one variable in the housing equation thats pretty flexible is the pace of the abandonment and removal of least attractive existing housing stock. If we are seriously overbuilt, the new stock will get used, if at lower prices, and the least attractive existing housing will sit empty. This is what happened to inner cities 30-40 years ago. Depending on how overbuilt we are, we may see something like this again. The interesting question is where.
Depending on how overbuilt we are, we may see something like this again. The interesting question is where.
Great post szara.
While I agree demographics are important & you make a great point, the point vader & I are a making is IF the people don't have the income to support the cost of the housing - they can't buy it REGARDLESS of where they are in the stack of cohorts. Desire doesn't turn into demand without the means to pay.
Example: in the depression my father lived in a house with four other kids, both parents, an uncle and an aunt and for awhile another uncle. It was a two bedroom home, 600 sq ft with three season porch. My father slept on the porch with his younger brother... no insulation. This was in Minnesota during the coldest winters & hottest summers on record (1936)
It can happen again: in the 80s rustbelt recession we had my wife's brother living with us on three diffeent occassions when the factory he worked in shut down. I'm guessing he has lived with us at least five years out of our 25 year marriage - decent guy, I don't mind, heck we went hiking together over labor day. But it wasn't by choice.
Point is with the cost of housing high and pricing sticky... coupled with flat earnings & crappy job prospects, especially for the young... it isn't clear at all that those demographic bumps will turn into actual demand UNLESS there is a major recet in prices or increase in peoples fortunes so more can afford.
Does anyone have published data that shows historical trends in house appreciation/depreciation?
I had a discussion with a couple of individuals that were sure prices have, since the early 70's, always gone up or, at worse, held firm for year over year. I had plenty of anecdotes, but no collected data.
Thanks,
Excellent background analysis though. Thanks for the work, the trouble and the insight. Makes you wish/wonder if many in the industry are as thorough in market analysis and planning - particularly since it doesn't seem to show up in the normal business press.
As a suggestion for the next turn of the crank, and following along earlier comment exchanges, it would seem the basic problem(?) is dealing with the accumulated stock of new housing and it's relationship to demand. IF X unit would be required for pop. X people/unit and something like 1.5 * X were built then we'd have an overshoot that would have to be worked off. Didn't we put some guestimates of that in some comments a while back ?
In any case good luck - I'm sure we'll all look forward. BtW - why just New Homes - wouldn't the stock of existing homes go to alleviating some of the demand for housing ?
Calculated,
I would be very interested to hear more about your background. Your blog is my number one visit on the web for housing and economic info... and no I do not believe we are related.
Keep up the great work!
Cariboo_Kid
Great work CR.
Another thing I'm curious about is the elasticity of the demand... just because people desire their own housing unit, if things soften how much are those people willing to pay to achieve those desires?
Demographically we have two interesting groups here - adult children who might stay longer with parents if they can't afford their own place OR retired parents who for one reason or another can't easily afford their own place and move in with one of their kids.
In either case it could have a big effect on demand (both in units numbers & prices). Have you started to consider those variables? Say maybe as 'outer limits' of your base model?
I am trying to do the same thing -- estimate new home sales. While the Census dept housing inventory report (from the home vacancy report) has numbers that I don't always believe, the number of vacant homes for sale was just staggering in Q2. And when you look at regional data -- I assum you saw the Arizona Real Estate Center estimate for vacant SF homes in Maricopa Co. in the second quarter of this year vs. last yaer -- well, my goodness~
DaveL, dryfly and All, as you can probably tell this was mostly a stream of consciousness post - I was asking myself questions, and sometimes I'd find answers. How many total units are built each year? What demographic factors drive demand? Sometimes I was disappointed - how many houses are demolished each year, or otherwise taken out of the overall stock. I still don't know.
I'd like to know the total stock, but as Tom Lawler noted, the numbers from the Census Bureau seem off. Of course the number of vacant housing units is at an all time high - and that is part of supply.
I focus on New Home sales because there is a good historical record for that number, and a drop in New Home sales impacts the economy by the loss of construction jobs.
When it comes to working out the supply and demand, both rental units and existing homes are substitutes for New Homes. The good news for home builders is usually they are willing to lower their prices faster than existing home owners - so their sales should not drop as far as sales for existing homes.
As far as elasticity of demand, it is really hard to determine during a period when the markets aren't clearing properly. Historically real estate prices display strong persistence and are sticky downward. That is why we usually observe a significant drop in transaction volumes and a rise in inventories, before we finally see price drops.
I'm a little tired tonight or I'd keep writing!
BTW, OFHEO releases their Q2 price data tomorrow.
Best to all.
CR,
I strongly recommend you crunch the numbers in Table 12. Household Estimates for the United States, by Age of Householder: 1982 to Present. They'll give you a feel not only for how the home ownership rate has risen overall, but more importantly, how much it has risen for heads-of-household in each 5-yr age cohort.
While housing is very durable, it's not quite eternal. Is the natural lifecycle, combined with individual destructive events and widespread catastrophes like Katrina, completely negligible in statistical terms?
Nice article on Bloomberg today:
Commentary by John F. Wasik
"Sept. 5 (Bloomberg) -- When there are more home for sale''
thanhelp wanted'' signs, the U.S. economy may be mired in
recession.
Most gauges are confirming that the housing market has hit
the brakes and may be in a tailspin. Existing-home sales dropped
a more-than-expected 4 percent in July and the number of unsold
houses is the largest since 1993. New-home sales fell 22 percent
from the same month last year. And construction spending fell the
most in five years.
While higher mortgage rates and affordability concerns have
been the bogeymen in the current U.S. housing decline, little
attention has been paid to the combined demons of unemployment
and adjustable-rate mortgages."
.
.
.
Location Location Location
Another variable to consider. If much of the excess stock is in say Miami, how does that affect say Birmingham.
Other things, I remember an article from 25 years ago, talking about communical living for retired folks.
Historically, during 99% of human history, 2-3 generations lived in the same dwelling, much smaller that current US homes. This is true of most humanity today in my opinion.
So figuring demand is going to be quite a task.
IMHO the drop in new home prices faster than existing stock prices may effect demand because of the underwater folks. As long as the fixed cost of moving(mortgage) and the variable costs(cost of moving plus commissions) is less than the sale receipts then the drop in new home prices is relativly a good thing. When those costs exceed the sale receipts, then the system will 'freeze' as existing home buyers cannot upgrade to a newer home regardless of opportunity and the only demand is brand new buyers who will be constrained by what I suppose are higher interest and greater restrictions on loans.
One of the important facts that seems to be missing from your analysis concerns the future effects on the housing market of Generation Y - born between 1981 and 2000.
In total numbers, this generation is as large as the baby boom generation. The eldest members are turning 25 this year, and the peak birth year of 1990 puts their peak member at age 16.
The average age of first time homebuyers is around 32, meaning most of Gen Y's oldest members are still renting, while the peak group is still in high school.
This generation will cushion the fall of home prices in the coming few years in my opinion.
Westcoastflorida,
No, I don't think it'll cushion the numbers. To begin - as you already noted - the leading edge is ~25, and they don't tend to start buying houses till they're ~32. That's seven years of delay.
Second, the peak -- the ones in high school -- are only now really paying attention. The next five years are going to be their formative years for expectations of housing. The lesson THEY will get is that housing doesn't always go up. For the current 32-40 year old group, housing always goes up, and it goes up so much that flipping is obviously a good thing. "Buy as much car as you need, and as much house as you can afford," is the credo I recall. For GenY it's going to be "Rent as long as you can, and only buy as much house and car as you need."
I'd be unsurprised to see GenY be a savings generation. Oh, not the current leading edge, but the current 8-17 year olds. But that's just my guess.
This generation will cushion the fall of home prices in the coming few years in my opinion.
But we have to get them off our couch first.
Seriously - I have three in that cohort. Among them & all their friends combined (talking multiple dozens of kids ages from 15-25) there is one or two real jobs among them all.
Now I don't expect the 15-20 year olds to be making real money yet though I was when I was 20... but these kids are facing a severe job market. Jobs 'yes' - good pay, security, benefits 'no'.
Most all (even with college educations) are bouncing in and out of their parents homes - they are lucky to have money to rent apartments let alone the ka-ching to buy.
And from what I can tell - talking to my peers with Gen Y offspring, I'm not alone.
And its not that the kids are lazy - no more than I was at that age anyway - its just that times have changed, again.
If housing were cheaper or jobs for young people better & more stable, I'd fully agree with your analysis.
But not until one of those two factors change.
Thanks for the responses Kirk and dry fly.
I too have 3 in that generation. One is renting on the east coast of Florida, one just graduated from college and moved home for the time being, and the third is still in college.
My oldest was born in 1982, so is my data point for the oldest gen Y's. What motivates him is - his girlfriend, who wants a middle class life including a home. They are planning on getting married next summer. Homes are out of reach for them at the moment, but assuming they hang onto their jobs in the coming recession and home prices fall, they won't be out of reach in a few years.
The 32 median age for first time homebuyers is a red herring in my opinion, as there were many gen x'ers and even baby boomers who didn't buy until the last 5 years when interest rates cratered.
May I suggest that desire to own is not demand, but the desire plus the ability to buy.
How far will New Home sales fall?
One near-term factor is that the big builders seem to have actually increased construction this summer, even has sales fell and inventories jumped. Apparently, this is true at the end of every cycle.
I didn't believe it when I was first told this, but I went to new home sales stats for July
and found that if you add homes sold under construction and homes for sale under construction, the figure for July '06 is 10% higher than for July '05. So there is going to be a much bigger inventory overhang then is currently apparent.
In the longer term, I think one big change will be in the second (vacation) home market. Leveraging your main home to buy a second one for vacation, future retirement, etc., seemed like a no-brainer when values were increasing +10%/year. It's going to seem pretty foolish when appreciations are flat or falling. I predict areas full of vacation homes are likely to get severely whacked. So new home sales in those areas are likely to plunge. But since those areas are nowhere near areas of job creation, it might have a limited effect on total new home sales. It just might be really cheap to get a vacation home in a few years.
Please follow jm's advice. Your 25 year old might not have a mortgage, but there is an unmistakable data trend.
I charted home ownership over the past 50 years in 5-year age groups.
The young are not a top factor in the bubble, but a clear demographic growth of young home owners is present despite increased costs. Less than 15% of 25-year olds in 85, more than 25% today.
Another interesting trend is for the older. By the numbers, they are staying put. Ownership among the over-65 is up ten percentage points since 85. Boomers don't want those boney old coots moving in with them, and are willing to pay exhorbitant home care prices to prevent it.
Name - soon the boomers will be the boney old coots & the question is will they have the savings & resources to NOT end shacked up with their slacker Gen Y spawn? They'll all be fighting over the couch.
I'm not saying all will double up but I'm not comfortable looking at the demos alone without considering the means required to make wishes come true.
Also consider the main theme of w coast florida's post... that these Gen Y'ers will drive demand to sustain prices not just fill units. Its one thing to move out on your own - it's a whole other thing to move out with means to support current pricing trends.
Looking at income trends of the young Y'ers & savings rates for the boomers... I'm not ready to accept there will be sufficient means to support the current price appreciations in REAL inflation adjusted terms.
But then maybe Asia will continue to pump liquidity mana from heaven into the markets and we'll all be rich forever. And maybe not.
They probably won't drive ownership yet, but could well drive rentals as they are still reasonable for the most part.
Our Gen-Y son is renting- finished college in 3 yrs has a job.(yeah!!)
Several groups of his friends are renting housing with about 10 friends living together in one house.
With high food and energy expenses, many are looking for even cheaper options than renting. Those high paying e-commerce jobs are gone. Though I know Gen-y's that have ivy league grad degrees too- they are renting and sharing with roomates- as the rents in WDC or NYC are unapproachable even with great starter jobs.
Above a certain point, housing becomes a luxury and not a necessary.
A 3 BR 2 BA house can be for one family or 3. The House I live in was formerlly rented by its owner. She lived in the Master BR, and rented 2 BRs out.
I expanded it by 3 additional rooms. In theory but against zoning rules I could have 5 tenants. So I think housing is more flexable than thought.
I am sure the house in back of me has 3 Hispanic families in it. The house to the East has had at least 2 families in it. This in a middle to upper middle class area.
Housing is going to depend on income increase not debt and from jobs other than housing to really expand.
Expecting desire from the potential customers is not enough.
I agree vader - I have NO IDEA how many live in the rental next to me (kids - good enough bunch but a large noisy bunch - hey but they share... want a beer mr dry fly?)
But I know the landlord showed up over the weekend & had a pow pow with them. I just think he wants an occasional head count & to be sure the guy on the lease is still there. We aren't talking the Taj Mahal.
Housing is indeed flexible.
Household size changes are largely a function of changes in age structure. When large cohorts of kids grow up, they form new, small households (1-2 persons). At the same time, the households they left shrink. Family structure trends such as increased prevalence of divorce and increase in long term single person households also have an effect.
In looking at demand, you also have to assume some existing housing will be removed from the stock for various reasons.
To drive demand nationwide, you need a bump in under 35 household formation. Whether they live in new or existing housing, they will still push demand up. Much of the new housing today is the move-up market, but you cant move up if you cant sell your existing house to a (typically)younger buyer. As others have noted, there will be a bump with the Gen Y or echo boomers, but that peak is still in high school. Based on the Census CPS table that jm linked to, households under 35 bottomed out in 2003 and have started to climb. In 2003, under 35 HHs were 1.7 M below the 1989 peak, and by 2005, were down 1.53 M from the peak.
Boomer birth peak 1957 HH under 35 peak 1989 32 years difference.
Baby bust bottomed out in 1973 - HH under 35 nadir 2003 30 years.
Echo Boom Gen Y birth peak 1990. Add 30 years and youre at 2020. So well need some housing by then. And immigration is part of the picture too.
Something I wonder about: one variable in the housing equation thats pretty flexible is the pace of the abandonment and removal of least attractive existing housing stock. If we are seriously overbuilt, the new stock will get used, if at lower prices, and the least attractive existing housing will sit empty. This is what happened to inner cities 30-40 years ago. Depending on how overbuilt we are, we may see something like this again. The interesting question is where.
Depending on how overbuilt we are, we may see something like this again. The interesting question is where.
Great post szara.
While I agree demographics are important & you make a great point, the point vader & I are a making is IF the people don't have the income to support the cost of the housing - they can't buy it REGARDLESS of where they are in the stack of cohorts. Desire doesn't turn into demand without the means to pay.
Example: in the depression my father lived in a house with four other kids, both parents, an uncle and an aunt and for awhile another uncle. It was a two bedroom home, 600 sq ft with three season porch. My father slept on the porch with his younger brother... no insulation. This was in Minnesota during the coldest winters & hottest summers on record (1936)
It can happen again: in the 80s rustbelt recession we had my wife's brother living with us on three diffeent occassions when the factory he worked in shut down. I'm guessing he has lived with us at least five years out of our 25 year marriage - decent guy, I don't mind, heck we went hiking together over labor day. But it wasn't by choice.
Point is with the cost of housing high and pricing sticky... coupled with flat earnings & crappy job prospects, especially for the young... it isn't clear at all that those demographic bumps will turn into actual demand UNLESS there is a major recet in prices or increase in peoples fortunes so more can afford.
Does anyone have published data that shows historical trends in house appreciation/depreciation?
I had a discussion with a couple of individuals that were sure prices have, since the early 70's, always gone up or, at worse, held firm for year over year. I had plenty of anecdotes, but no collected data.
Thanks,