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Changing Demographics in America: What it Means for the Housing and Building Markets – Part I

dianahill
Diana Hill
Professional Real Estate Investor Instructor

A couple of weeks ago we looked at leading indicators, but at that time I didn’t talk about Housing Permits or Housing Starts. I’ll share those stats now and tie them into a series of articles about where the housing market is headed due to demographic shifts.

First, a quick review of what defines Housing Permits and Housing Starts:

Housing Permits: Official certificate of permission issued by local authorities to a builder to construct, enlarge, or alter a building.

Housing Start: The number of privately owned new houses on which construction has been started in a given period.

As of May 16th, Housing Permits fell a little – 0.7%.  Housing Starts were up as reported by The Commerce Department with an increase of 2.6% to a seasonally adjusted annual rate of 717,000 units.  March’s starts were revised up to a 699,000 – up from a previously reported 654,000 unit rate.

Economists polled by Reuters recognize that residential construction is up 29.9% over last year at this time. Many of the these economists feel that the housing market is showing some signs of life after collapsing six years ago, but remains hobbled by a glut of unsold homes. However, rising demand for rentals, (we’ve seen builders breaking more ground on apartment projects as of late) is helping to stabilize the market.  In fact I have a friend who works with apartment builders in Southern California and she told me that the market is poised to explode.

Builders are confident that the market is growing.  The NAHB (National Association of Home Builders’) May Housing Market Index reached the highest level in five years.  The NAHB states this is because “more potential buyers appear confident that the housing market has hit bottom.”

So how does all this tie into changing demographics in the US?  Simple really, the growth and/or contraction of our population directly affects household formation which in turn, directly affects what and how much is built in this country.  The key to any long-term investment is the ability to anticipate where the market is headed and seize it.

Over the next couple of weeks we’ll take an in-depth look into the stats and where they indicate the market is headed. Let’s start with the population and its growth.

The U.S. population has experienced remarkable growth since 1950. The base in 1950 was about 152 million Americans; an additional 156 million persons were added to the population between 1950 and 2009.  This increase of about 103% in the size of the U.S. population is remarkable compared with other industrialized countries.  The U.S. has seen a slowdown in growth as other countries, such as Pakistan and Nigeria’s populations have exploded.

The Census Bureau projects that the US population will grow to almost 440 million by the year 2050, a slower pace than the last century.

This means that household formation will continue to happen and that there will be opportunity in the long run.  But where are the opportunities in the next ten to twenty years?  I see them steming from the change that is coming from our aging population as the Congressional Research Service white paper states in “The United States is Getting Older”.

The US population in the first half of the 20th century was relatively “young.”  To put that in perspective, in 1950, 91.9% of people where under the age of 65. In 2009, 87.2% were under the age of 65 and in 2050 it is projected that only 79.8% will be under the age of 65.  In other words, in the year 2050 one in every five people in the US will be over the age of 65.

This will change what housing looks like.  Next week we will explore how these aging baby boomers will impact housing.

Diana D. Hill

dhill@tradingacademy.com

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