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Tectonic Shifts in Industry Demographics Are Coming

A new First American Financial Corporation Economic Insights Blog authored by Economist Ksenia Potapov explores the demographics between Boomers and Millennials and what happens when these two generations collide.

According to Potapov, demographic trends are a fundamental driver of housing demand and supply and analyzing them can help anticipate how many people will need housing, as well as roughly when, where and what kind of housing. During the pandemic, the peak of millennial demand for homeownership coincided with record-low mortgage rates and a shortage of homes for sale, creating a perfect storm that resulted in double-digit annual house price growth.

But, as millennials continue to age into their prime home-buying years, boomers are aging out. This brings up the question of how demographics will shape housing demand and supply dynamics in the coming years?

But Potapov suggests that people in their 30s are the new 20s. For a variety of reasons, the homeownership rate for millennials lags behind their generational predecessors.

“At age 30, the millennial homeownership rate is approximately six percentage points lower than that of their generational predecessors, Generation X, at the same age,” Potapov said. “That’s largely because millennials have prioritized their education, which takes time and money, and have delayed marriage and family formation, which are motivators for and are correlated with homeownership. Previous generations made these lifestyle choices in their 20s, millennials are making them in their early-to-mid 30s. As evidence of this trend, the homeownership rate gap between 40-year-old millennials and Generation X is significantly narrower, at just two percentage points.”

Today, the amount of boomers is dwarfed by the number of millennials, who are now aging into their 30s. According to the U.S. Census Bureau projections, the number of 30-to-39-year-olds will continue to increase to at least 2030.

Additionally, millennials’ higher educational attainment is translating into higher earning power, a strong determinant of homeownership. As of 2022, over half of millennial households were homeowners, which still leaves many more young households who want to make the same transition. In the short term, high mortgage rates and reduced affordability may lead them to delay, but not forego, their transition into homeownership.

According to Potapov, the aging-out transition will be a trend to watch over the coming years.

The homes sold by boomers will need work: approximately 942,000 single-family homes owned by a head of household that is over the age of 60 are considered “inadequate” dwellings, according to the 2021 American Housing Survey (AHS). The AHS definition for an “inadequate” dwelling includes units with severe defects such as a lack of electricity or hot water, insufficient heating during the winter, or water leaks.

This leaves about 32 million homes considered adequate. Of those, approximately 11 million were in the top 25 U.S. metropolitan areas, including 1.5 million units in New York, 852,000 in Los Angeles, and 490,000 in Washington, D.C.

“Even so, many of the structures considered adequate would still likely need updating and remodeling to be brought up to date and be attractive to potential buyers,” Potapov said. “Given the highly sought-after locations of these housing units, there will likely be buyers willing to spend the money needed for updating and remodeling. Somewhat by default, the fixer-upper will be popular again.”

Finally, Potapov says that demographic forces are hard to outrun.

“The demographics for home buying will remain very favorable in the coming years. Today, the housing market suffers from a shortage of housing inventory—a deficit of approximately 2 million housing units in early 2023—due to a combination of decade-long underbuilding and a demographic wave of demand from millennial home buyers,” Potapov concluded. ”However, the generation behind the millennials, Generation Z, is smaller in size and will likely require fewer housing units. Over the next decade, as baby boomers age out of homeownership, the housing shortage may narrow and eventually disappear. Demographic trends dictate long-run demand and supply in the housing market and, though they may move slowly, they are hard to outrun.”

About Author: Kyle G. Horst

Kyle G. Horst is a reporter for DS News and MReport. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography including best newspaper design by the Associated Press Managing Editors Group and the international iPhone photographer of the year by the iPhone Photography Awards. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at [email protected].

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