I’ve been doing a little light reading this morning in several places on what has been termed a recovery in the housing market. Unfortunately, the demographic realities don’t play well with what we’re seeing in the housing market for a real, genuine recovery. Here are some simple stats to back up what I’m saying.
- Increase in Retiring Baby Boomers. At about 300K retirees hitting the market each month in the United States, there is a demographic shift occurring. This group of retirees makes up about 25% of the total U.S. population. They shifting to retirement living soon and many of them will require significant downsizing as they move to the next stage of life. It sounds like a large supply glut waiting to happen.
- No Jobs for Generation X & Y. The children of boomers have been struggling. In fact, the stats show that the stagnant recovery has hit recent college grads the hardest. With little experience, they’ve not had the ability to enter the workforce as first-timers with the force they may have expected. In addition, many in this demographic group have crushing student debt compared in inflation-adjusted dollars to their parents’ generation. It is a given fact, that real, sustainable recovery requires the influx of the first-time home buyers. Unfortunately, we may not see that for some time yet.
- Easy Money. Easy money makes for speculation. No one speculates more than those with access to large amounts of capital. Hedge fund and private equity investors are using the Fed’s easy access to the QE pump to ensure the housing recovery happened faster than it naturally would have occurred. In fact, most prognosticators fail to cite the fact that the first drop in housing prices in 2008 WAS THE RECOVERY. What we’ve seen since then is artificial inflation thanks to Quantitative Easing by the Federal Reserve.
Is there a bubble? Of course. How far it down will prices have to drop before we reach bottom again. Not even Yale University’s Robert Shiller had a good answer as to how risky the housing market may be.
My personal take is that Shiller may not be pessimistic enough on how the housing market will recover, but that’s just a personal opinion.
