Demographics – The Missing Link

Why home prices will not Crash anytime soon

As a broker, I regularly get asked “Are we in a bubble?” or “are prices going to crash like 2008?”. Or a buyer will make the statement “I’ll wait till prices crash”. The answer is a resounding “NO, prices will not crash!” Let me tell you why- 

Most everyone agrees that low inventory, high buyer demand, & low interest rates are the main drivers to higher & higher housing prices. While it is true that available inventory for buyers is at historic lows, & low interest rates give buyers more buying power, most writers are missing one very important factor that will perhaps be the biggest driver of price increase’s going forward – DEMOGRAPHICS– the coming wave of First Time Home Buyers.

I’ll explain this coming wave in a minute but first lets go back in history to see how Demographics can affect housing Prices. Most people call The Crash of 2008 through 2014 ‘The Housing Crisis’ but it’s roots were not in housing. It was a bank induced financial meltdown that in the end affected home prices.  Banks made bad loans, homeowners had little or no equity, and builders built too much inventory.  Then, because of this bank corruption, no one could get a mortgage and few could sell because they had no equity. In short, too many houses, no buyers (unless they had cash) and no mortgages; the exact reverse of what is happening today. But there was a silent factor in this Perfect Storm that few recognize:  fewer First Time Home Buyers. Because of an event unrelated to real estate that happen 30+- years earlier – Rowe vs Wade.  You see, in 2006 the average age of first time home buyer was 30 to 32 years old, so they were born in 1974 to 1976. With the legalizing of abortions, birth rates plummeted for 6 or 7 years, resulting in fewer first time home buyers starting in 1973 & 1974. Couple this with builders over-building leading up to 2008, and what happened is now history. See chart below

Chart showing Home buyer Demograohics
When were Average Home Buyers Born?

Now, lets fast forward to 2021, the average age of the first time home buyer has increased to 33 (National Association of Realtors®). Looking at the chart again, we see that an average of 3.8 million people were born in 1987 -1988. (That’s over 700,000 more than the 3.1 million average in 1974-1976). And, as the chart shows, the number of buyers will increase for the next 3 years, peaking in 2023 (Born in1990), just barely return to today’s levels by 2028 to 2030 and then peak again in 2040. So, as many &/or many more average age first time home buyers for the next 20 +years! And, this generation of home buyers has more wealth than first time buyers in the past!.

So what is going to happen? The silver lining is that in 2020, US home-builders were just beginning to deliver enough homes to satisfy an average years demand. The Mortgage crisis of 2008 – 2004 wiped so many builders out that we were almost 3 million homes behind by 2020. And except for the speed bump of COVID in spring quarter 2020, builders are now set to finally deliver at least enough homes to keep up with demand. If builders are able to keep up the pace and build what today’s post-COVID buyer desires, we may see some of the pressure on prices lessen. If you are a buyer, one can only hope.  If you are a seller, rest assured, in my opinion, your value is safe for the foreseeable future.

Leave a Reply

Your email address will not be published. Required fields are marked *