Real Estate Glut?

The next time the housing market crashes it may not come back for decades.

I was born in 1961. Let’s look at the U.S. demographics of the time, above.

Read from the bottom up. We all start in the bottom demographic 0–4, then move up into old age above.

There I am, in the 0 to 4-years-old cohort, 22 million strong. Indeed, the largest cohort at that time (end of baby boomers). I’ve drawn a triangle around 1961’s older demographic, whose houses my cohort will move into as they retire, pass-away and so forth.

If we assume they had enough housing in 1961 it’s apparent there won’t be enough housing for us in 1991.

Thirty years later, most of my family and friends bought houses. Between 1960 and 1991 U.S. housing units rose from around 68 million to 105 million. We would buy from the homes in the reference triangle plus that new construction.

I don’t personally know anyone who wanted a home and wasn’t able to buy one. Indeed, many have multiple homes.

Between 1990 and 2005 housing increased from 105 million to 125 million. Then the housing bubble burst.

At this point, most people above the age of 30 are in homes and our triangle of future availability is full.

Bringing us up to present day.

The older population has broken out of my generation’s reference triangle of 1991 and reached full capacity in 2006; that is, the green triangle might indicate current home availability (assumes everyone has enough homes from our generation).

Below that hypothetical triangle of existing housing I’ve drawn a line around those will maintain that housing in the future (and buy it).

Do we have enough housing for everyone? Certainly, there are the homeless, but they are in the hundreds of thousands, not millions. So it seems to me we have enough housing for everyone. People don’t complain about finding a roof over their head; they complain about what neighborhood they can afford that roof.

If we remove expectations, it IS possible that a glut has been building since 2006. Or, How can the next generation have too few homes when they are not a larger cohort than current boomers?

Of interest, the cohort of 0 to 4 years-of-age is the same size as it was in 1961. This is a decrease relative to the fact that the population is currently 330 million (from 180 million). The ratio of housing units to the population has increased from 0.38 to 0.43. Both in nominal, and percentage terms, there will be more property from today’s newborn’s to choose from (and everyone else above them).

Where will demographics be in another 10 years?

There isn’t a huge change. That could be a bigger problem than many realize. Replacement (new) homes are expensive. The houses in the top are maintained by the population below, which is not growing.

Put another away, in my lifetime housing has increased as younger people built homes and their productivity serviced them. Despite what I read in the media, the demographics may suggest we need new homes, but not at the rate I experienced in the past. Worse, the number of people around to repair those homes is not growing. Either home owners will have to pay more for that shrinking pool of laborers or let their homes deteriorate.

Do we have a glut of real estate? Is there more real estate than young people can maintain or rebuild at the same cost? We shall see!