Housing and Demographics
Demographics are very useful in predicting housing trends. It was 12 years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive.
On demographics, in 2010, a large cohort had been moving into the 20- to 29-year-old age group (a key age group for renters).
Then, as I noted in 2015, by the 2020s, a large cohort would be moving into the 30 to 39 age group (a key for ownership). That has been driving housing demand recently.
This month the Census Bureau released the population estimates for July 2021 by age, and I’ll update some tables and graphs from previous posts.
This graph shows the trend from 1990 to 2060 for three key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap). All data is from the Census Bureau (current to 2060 is projected).
We can see the surge in the 20 to 29 age group last decade (red). Once this group exceeded the peak in earlier periods, there was an increase in apartment construction. This age group peaked in 2018 / 2019 (until the 2040s), and the 25 to 34 age group (orange, dashed) will peak around 2023 / 2024.
For home buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior). The population in this age group is increasing and will increase further over this decade.
The current demographics are now very favorable for home buying - and will remain somewhat positive for most of the decade, although most of the increase is now behind us.
Here is an even longer-term graph from 1960 through 2060. The surge in baby boomers reaching their 20s (red), led to a huge increase in apartment construction in the early 1970s.
Then home-buying became favorable in the late ‘70s, but housing still slumped in the ‘79 to ‘82 period as the Volcker Fed raised interest rates to fight inflation. This is one reason I’ve been arguing Don't Compare the Current Housing Boom to the Bubble and Bust, look instead to the 1978 to 1982 period for lessons.
U.S. Demographics: Largest 5-year cohorts, and Ten most Common Ages in 2021
And some updated tables using the just released data.
The table below shows the top 10 cohorts by size for 2010, 2021 (released this month), and the most recent Census Bureau projections for 2030. In 2021, 6 of the top 7 cohorts were under 40 (the Boomers are fading away), and by 2030 the top 10 cohorts will be the youngest 10 cohorts.
There will be plenty of "gray hairs" walking around in 2030, but the key for the economy is the population in the prime working age group is now increasing. As I noted in 2012, this was positive for apartments, and more recently positive for housing.
The next table shows the ten most common ages in 2010, 2021, and 2030.
Note the younger baby boom generation dominated in 2010. In 2021 the millennials have taken over and the boomers are off the list.
This is why - a number of years ago - I was so positive on housing. And this is still positive for the economy.
IMPORTANT NOTE: The data above is based on the Census 2021 estimates and 2017 projections. Housing economist Tom Lawler has pointed out some questions about earlier Census estimates, see: Lawler: "New Long-Term Population Projections Show Slower Growth than Previous Projections but Are Still Too High"
The last graph, based on the 2021 population estimate, shows the U.S. population by age in July 2021 according to the Census Bureau.
Note that the largest age groups are all in their late-20s or 30s. There is also a large cohort in their mid-teens.
This data is for U.S. population. The real key for housing is household formation (not population), however, unfortunately household data is released with a lag (See: The Household Mystery). Population data is very useful in predicting long term trends, however, other factors (like in the 1980 period) can overwhelm demographics in the short term.
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