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Demographics Will Rule Housing

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Demographics Will Rule Housing

Alex J. Pollock provides an excellent picture and analysis of the bleak housing market (“On Housing, There Will Be More Lean Years Ahead,” op-ed, May 12). However, he neglects one other very important housing head wind that is inescapable: demographics.

There are about 78 million baby boomers who are beginning to hit retirement age. The average boomer has saved only about $140,000 for retirement, not counting equity in his house. Therefore, the boomers most likely will be “downsizing” to fund retirement soon. Their parents’ generation is about 40 million and decreasing rapidly. The generation behind the boomers (Gen X) is about 41 million, or 37 million less. The boomers are the first generation that is larger than both their children’s and their parents’. These facts will affect many areas of the economy, including housing prices.

The boomers and their parents total about 118 million people. What do you think will happen to housing prices when 118 million people try to sell houses to 41 million? Even if they sell some to their own generation, the law of supply and demand will dictate massive price decreases, and no easy money policy will be able to compensate. This price deflation and unwinding of the baby boom bonanza will continue until the millennium generation comes of age and has the ability to buy houses. The only short-term remedy is massive immigration, as happened in the early 1900s, which created the baby-boom economic miracle that we have been enjoying for decades and which is now almost over. In the long term, people create wealth, not economic policies. Seller beware.

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