From Home Furnishing Business
Statistically Speaking: The Ebb and Flow of Housing
Although the housing industry has picked up some steam over the last two years in terms of existing home sales and housing starts, the lagging growth over the last five plus years can be partly blamed on the slow recovery from the recession and partly on the demographics of available homebuyers.
However, all of this is beginning to change on two polar fronts.
At the youngest end, the housing industry is starting to feel the bump from the millennials, the children of the Baby Boomers, as they age into the housing market. On the older front, the Baby Boomers’ changing housing needs are already creating a different kind of housing bump. Both should spur housing growth and subsequently the furniture industry for the next 10 to 20 years.
Millennials vs. Baby Boomers
This year, millennials are expected to surpass baby boomers in numbers and become the largest living generation. The millennials are generally defined as children of the baby boomers born between the early 1980s and the early 2000s. The oldest millennials are entering their 30s and the youngest are still pre-teens. Over the next 10 to 20 years, millennials will pour into the housing and apartment markets and many of the baby boomers (currently ages 51 to 69) will downsize to smaller homes, single-family retirement communities or group housing.
Table A shows how the population will grow and change over the next 10 years with the surge of millennials and the skyrocketing of baby boomers in the over 65 age group. Boomer growth over 65 will total 37.8 percent—increasing at a rate of 3.3 percent a year from 2015 to 2025.
Table B shows the current population of millennials and five age groups from 10 years to 34 years of age. In 2015 the highest population of millennials falls into age group 20 to 24 with 22.7 million people, while age group 24 to 29 is only slightly smaller at 22.5 million. Millennials are just starting to age into their home buying years with 21.7 million in age group 30 to 34.
Projecting out 10 years, Table C shows the age groups millennials will comprise in 2025. Over the next decade, the youngest of the millennials will be leaving college and entering the rental or housing markets and the oldest will be in their early 40s and often upgrading housing. Age group 30 to 34, primarily first time home buyers, is projected to increase 12.9 percent—from 21.6 million to 24.5 million, while the population of 25-to-29-year-olds, prime renting age, shows a slight growth of 2.8 percent. Ages 35 to 39 and 40 to 44 are expected to increase 15.9 percent and 10.5 percent as the older millennials age into a traditional period of housing upgrades.
In terms of net population growth, Table D shows the impact in the next five years of the changing demographics of both the millennials and baby boomers with the middle lower birth-rate population generation X stuck in between. By 2020 people in their late 30s are expected to grow 1.7 million, while age group 30 to 34 has a forecasted increase of 1.5 million—both adding to potential growth in the housing industry.
As the leading edge of the Baby Boomers begin to age into their 70s over the next five years, a need for senior and lifestyle housing will dramatically increase. Already 55-and-over, single-family communities are in rapid growth. An additional 3.4 million people are expected to flow into age group 70 to 74 by 2020 while almost 2 million are added to age group 75 to 79.
Table E further illustrates the dramatic increase in the population of seniors from 2000 to projected 2025. Over the span of 25 years, the number of people between the ages of 65 to 79 is projected to have increased 95 percent. Population projections show 10 years from now that age group 75 to 79 will grow 62 percent, while age group 70 to 74 climbs 47 percent and people in their mid to late 60s will increase by 26 percent.
Housing Costs Climb
As millennials age into the home buying years, the question will become, “Will they be able to afford a home?” Housing prices and apartment rental rates have been on spiraling upward in many parts of the country. If rates continue to grow faster than wages, buyers and renters will be facing housing’s ever-growing demand on their incomes which in turn impacts their ability to not only buy furniture, but all consumer goods and services.
Table F shows the rising cost of home prices from 2002 to 2014. At the peak of the housing bubble in 2007, the median price of a home was $244,950. With the subsequent housing market crash, the price fell 12 percent to $215,650 at the bottom of the recession in 2009. Since 2009, housing prices have climbed dramatically higher than pre-Great Recession days—up 32 percent in 2014 at $284,825. Median home prices have increased an average of 8.2 percent since 2011.
Millennials are flooding the apartment market. The rapid jump in home prices over the past few years is adding to a rising rental market as many potential home buyers are turning to apartments and other rental housing. As shown in Table G, rent rates have increased from $1,042 per month in 2010 to $1,239 per month in 2015 year to date— a jump of 19 percent. Over the last five years, rates on rentals have increased an average of 3.5 percent a year.
The next 10 years is demographically poised to be a high growth time for the housing and apartment markets. The challenge will be providing affordable housing for the first-time millennial homebuyers as well as senior and lifestyle living for baby boomers.
Methodology: Figures reflect data from the U.S. Census Bureau on Population Projections. Note the Census varies the level of net immigration (the difference between those coming and those leaving) to discern its impact on the U.S. population. The findings show that immigration makes for a much larger overall population, while having only a small effect on slowing the aging of American society. If immigration continues as the Census Bureau expects, the nation’s population will increase from 309 million in 2010 to 436 million in 2050 representing a 41 percent increase. The Census Bureau assumes net immigration (legal and illegal) by 2050 will total 68 million. These future immigrants plus their descendants will add 96 million residents to the U.S. population, accounting for three-fourths of future population growth.