Economy Watch: What Will Demographics Favor Next?

Which way will the housing pendulum swing this time?

Only about 10 years ago, the apartment industry was in a funk over the way people bought houses more than they ever had before. The federal government got some of the blame for encouraging home sales through a variety of policies, but whatever the drivers, homeownership was at record levels in those days, pushing 70 percent of households. In hindsight, those were unsustainable levels, especially in the face of a popped housing bubble and unemployment that rocketed up to around 10 percent during the darkest days of the recession. The pendulum swung to apartment dwelling, and remains there.

That comes with some problems of its own, unless you happen to own apartments properties (in which case, now’s a golden age). According to a recent report by the Urban Institute, about 44 percent of American renters spent more than 35 percent of their income on rent in 2010, a figure based on Census Bureau data, and clearly a lot worse than it used to be. In both 1990 and 2000, only 33 percent of American renters spent more than 35 percent of their income on rent. Such figures not only affect the people involved, they depress spending on other things, including retail goods but also houses.

The shock of the recession also famously drove younger buyers away from the housing market — even those who might otherwise have qualified — directly by temporarily reducing their incomes and slowing down their careers, but also indirectly by slowing down marriage and childbearing. Though not true at all times and for all Americans, having children is generally a good indicator of interest in for-sale residential real estate. So when the U.S. birth rate dropped in the late 2000s, that was another factor in the drop off of home sales; only now has the birthrate recovered and started to rise again. But it’s recovered in such a way that shows that women are delaying childbearing longer than they used to — which is helping keep homebuying slow.

According to the National Center for Health Statistics on Tuesday, the birth rate for women aged 20–24 in 2014 was down 2 percent from 2013. The rate for women aged 25–29 was essentially unchanged from last year. But the birth rate for women aged 30–34 in 2014 was up 3 percent from 2013, and the rate for women aged 35–39 was up 5 percent. A large wave of young Millennial women will, as the 2020s dawn, age into their 30s, and that fact might well inspire another baby boom if current demographic trends hold. If so, and if the economy finally starts producing real wage increases, that will help drive a renewal of home sales.