Financial topics

[freddyv]

John,

Can you comment on this article at
http://www.cnbc.com/id/31482241

The children of baby boomers will eventually resuscitate the pummeled U.S. housing market, Harvard University said Monday, but in the meantime, limits on income and credit are sustaining the three-year bust.

The highest unemployment in almost 26 years, record foreclosures and rigid lending threaten to overcome emerging home sales progress despite unprecedented efforts by the Obama administration, Harvard's State of the Nation's Housing 2009 report said.

Echo boomers, the children of the post-World War Two baby boomer generation, offer a massive source of support for housing, the study said.

The generation is entering the peak home buying and renting ages of 25 to 44 and numbers over five million people more than did their parents' record-sized group in the 1970s.

"Echo boomers are larger than the baby boomer population. Couple that with immigration and you have the seeds, the possibility of a housing recovery," Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies, said in an interview.

The group will bolster demand for the next 10 years and beyond, supporting the sagging housing market even if immigration drops, the study said.

My take on this is that, yes, they will take up some of the slack but are likely to be the antithesis of their parents in regards to desiring McMansions and homes that "express who they are" and all that other baby boomer tripe.

--Fred

[Higgenbotham]

Echo boomers, the children of the post-World War Two baby boomer generation, offer a massive source of support for housing, the study said.

The generation is entering the peak home buying and renting ages of 25 to 44 and numbers over five million people more than did their parents' record-sized group in the 1970s.

"Echo boomers are larger than the baby boomer population. Couple that with immigration and you have the seeds, the possibility of a housing recovery," Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies, said in an interview.

The group will bolster demand for the next 10 years and beyond, supporting the sagging housing market even if immigration drops, the study said.

I'll defer to John on the generational aspects, but this is nonsense based on the demographic arguments alone. Here are the facts on numbers of live births in the US from 1909 to 2001:

http://www.cdc.gov/nchs/data/statab/nat ... ol1_01.pdf

Births went way down in the 1970's. From a demographic standpoint, that's why single family housing will be a bust for the next 15 years. From what I can remember about Harry Dent's demographic studies, peak real estate consumption occurs at approximately age 45. If we take the peak birth rates which ended approximately in 1961 and add 45, we can somewhat see the logic of a real estate boom ending in 2006. Similarly, adding 45 to the approximate end of trough births in 1978 gives us 2023 as the approximate end of the McMansion glut.

Apartments may be a different story as birthrates began to rise again toward 4,000,000 per year in the late 1980's. But that's only if all those kids can find jobs and have the money to move out of their parent's oversized houses.

And my analysis is just based on demographics alone. What happens if we draft all these kids to fight a war? Or if a pandemic sweeps through and kills them off?
_________________________________________________________________
Good reference to go with the above: According to Harry Dent, McMansion demand peaks at age 44. He also gives his demographic outlook on apartments and other types of real estate. http://www.hsdent.com/real-estate-trends/
_________________________________________________________________
In my opinion, the big monkey wrench when it comes to comparing echo boom and baby boom behavior is college expenses and associated debts. This something entirely new. College indebtedness, even if all other factors are equal (which of course they are not), will cause these kids born in the late 1980's and after to postpone or reduce commitments that the boomers were able to make at earlier ages when college costs were lower.
"Room(s) available for rent in McMansion(s). $175 per month. Young single female teacher(s), etc., OK. Include separate bathroom(s) and utilities. Six year lease available if you want to lock in the rate until your college loans are paid off. Proof that house payments are up to date available. Bring a friend and you both get 10% off. Bring 2 or 3 friends and my next door neighbors will give you the same lease terms."

[StilesBC]

Echo boomers, the children of the post-World War Two baby boomer generation, offer a massive source of support for housing, the study said.

The generation is entering the peak home buying and renting ages of 25 to 44 and numbers over five million people more than did their parents' record-sized group in the 1970s.

"Echo boomers are larger than the baby boomer population. Couple that with immigration and you have the seeds, the possibility of a housing recovery," Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies, said in an interview.

The group will bolster demand for the next 10 years and beyond, supporting the sagging housing market even if immigration drops, the study said.

I'll defer to John on the generational aspects, but this is nonsense based on the demographic arguments alone. Here are the facts on numbers of live births in the US from 1909 to 2001:

http://www.cdc.gov/nchs/data/statab/nat ... ol1_01.pdf

Births went way down in the 1970's. From a demographic standpoint, that's why single family housing will be a bust for the next 15 years. From what I can remember about Harry Dent's demographic studies, peak real estate consumption occurs at approximately age 45. If we take the peak birth rates which ended approximately in 1961 and add 45, we can somewhat see the logic of a real estate boom ending in 2006. Similarly, adding 45 to the approximate end of trough births in 1978 gives us 2023 as the approximate end of the McMansion glut.

Apartments may be a different story as birthrates began to rise again toward 4,000,000 per year in the late 1980's. But that's only if all those kids can find jobs and have the money to move out of their parent's oversized houses.

And my analysis is just based on demographics alone. What happens if we draft all these kids to fight a war? Or if a pandemic sweeps through and kills them off?
_________________________________________________________________
Good reference to go with the above: According to Harry Dent, McMansion demand peaks at age 44. He also gives his demographic outlook on apartments and other types of real estate. http://www.hsdent.com/real-estate-trends/
_________________________________________________________________
In my opinion, the big monkey wrench when it comes to comparing echo boom and baby boom behavior is college expenses and associated debts. This something entirely new. College indebtedness, even if all other factors are equal (which of course they are not), will cause these kids born in the late 1980's and after to postpone or reduce commitments that the boomers were able to make at earlier ages when college costs were lower.
"Room(s) available for rent in McMansion(s). $175 per month. Young single female teacher(s), etc., OK. Include separate bathroom(s) and utilities. Six year lease available if you want to lock in the rate until your college loans are paid off. Proof that house payments are up to date available. Bring a friend and you both get 10% off. Bring 2 or 3 friends and my next door neighbors will give you the same lease terms."

My generation will buy homes as soon or as late as it makes economic sense to do so. But history shows us, as Harry Dent's numbers suggest, that governments typically stand in the way of liquidations in prices. I would be more than willing to buy a home in the next couple of years (I'm 27) if it were to cost 3-4x my income (including a spouse perhaps?) and were roughly equivalent with what renting for 12-15 years would cost. But those ratios are 7.8x and 22x respectively.

I'm waiting for the market to do its work. Either my wages rise considerably or prices fall. Until then, I rent.

[Higgenbotham]

My generation will buy homes as soon or as late as it makes economic sense to do so. But history shows us, as Harry Dent's numbers suggest, that governments typically stand in the way of liquidations in prices. I would be more than willing to buy a home in the next couple of years (I'm 27) if it were to cost 3-4x my income (including a spouse perhaps?) and were roughly equivalent with what renting for 12-15 years would cost. But those ratios are 7.8x and 22x respectively.

I'm waiting for the market to do its work. Either my wages rise considerably or prices fall. Until then, I rent.

Your comment seems more "on the money" than my initial comment. If I understand Dent's article correctly, he says that apartment demand from the echo boomers would start to pick up around 2002 when the leading edge reached age 19. According to his figures, therefore, since starter home demand starts to pick up at age 26, 7 years later, that would project a pickup in starter home demand in 2009. Later, as trade up home demand starts to pick up at age 35, that would project a pickup in trade up (or McMansion) home demand in 2018. This would be purely from a demographic standpoint and taking Dent's numbers at face value.

[StilesBC]

I should add that the ratios I posted are specific to the Greater Vancouver Area where I'm from. I'm sure that in some of the numbers are getting closer to what's required in the harder hit areas of the US. Eventually, the lower cost of living will begin to attract folks from across the country trying to buy their first home. But before that happens, the job market needs to come back and wages need to avoid dropping lest prices require a further reduction to attract first time buyers.

I don't see that happening for another couple years at least. As John often points out, the ratios will likely overshoot on the downside of those historical norms.

[gerald]

Regarding Harry Dent's comments on real estate I think he is right on. However, if one invests in apartment buildings having small studios and one bedrooms, situated in areas with a large collage population, you can minimize the ups and downs in the market thereby creating a reasonably steady income stream, regardless of events in the economy. But you have to cater to the student population.

[aedens]

http://www.foreignpolicy.com/articles/2 ... 9?page=0,1

For you all who managed through those times.
For me 1981 was the hardest.
America must understand the consequences of barren ideologues
and back to core values.

[gerald]

Aedens:
You got that right, 1981, was a REAL BEAR, construction loans went up to 21%, the joke was it's cheaper to use a credit card, rates on cards were 18%
but when you start something, it is sometimes cheaper to finish, then walk.

[StilesBC]

http://www.foreignpolicy.com/articles/2 ... 9?page=0,1

For you all who managed through those times.
For me 1981 was the hardest.
America must understand the consequences of barren ideologues
and back to core values.

"As a result of the late 1970s revolt, we live today in a world defined by pragmatic and traditional values rather than utopian ones."

I had to stop reading after that line.

The high interest rates of the 80's seem to haunt the boomers more than anything else. I just finished a conversation with my mom about those years and how difficult it was. Perhaps one further reason that it won't happen again any time soon?

[aedens]

http://www.foreignpolicy.com/articles/2 ... 9?page=0,1

For you all who managed through those times.
For me 1981 was the hardest.
America must understand the consequences of barren ideologues
and back to core values.

"As a result of the late 1970s revolt, we live today in a world defined by pragmatic and traditional values rather than utopian ones."

I had to stop reading after that line.

The high interest rates of the 80's seem to haunt the boomers more than anything else. I just finished a conversation with my mom about those years and how difficult it was. Perhaps one further reason that it won't happen again any time soon?

Kill a chicken to scare the monkeys: http://www.realestatejournal.com/region ... reddy.html
Fear and praise sort out the rest anyway.
I have no problem with ignorance but not at my expense next week. The problem is growing utility.
"For illustrative purposes, changes in utility are sometimes expressed in units called utils."
Inflation: ceteris paribus clause used is economics which are employed to simplify the formulation and description of economic outcome.
http://research.stlouisfed.org/wp/2006/2006-018.pdf
Rent dissipation economies are inflation driven.
http://info.worldbank.org/etools/docs/v ... pation.pdf
In fledgling democracies, an incumbent government can use a free trade agreement also to reduce the likelihood of dictatorial takeover, thus helping “consolidate” democracy only. Another view was start so small ”China” in time it will be noticed which we have seen.
Indeed, the Financial ‘s report China has been buying up gold, raising its gold reserves by three-quarters since 2003. The newspaper also reported: “Hou Huimin, vice general secretary of the China Gold Association, said China should build its reserves to 5,000 tons. That’s more than four times what China’s current reserves of 1,024 tonnes. The reasoning here is unlike paper currencies, natural resources and commodities cannot be reproduced ad infinitum by central banks. Thus they are inflation proof. In addition, natural resources actually offer a direct benefit to China’s economy whereas an investment in a foreign currency (the dollar or otherwise) is merely a means of parking cash for a return.
Unless the Libtards wake up, yes Inflation but why would they care?
A chicken in every Pot for those truly in need, yes.