Over the past month, the phrase “When is the housing market going to crash?” saw a 2,540% increase in Google searches, according to a report in CNBC.  Our series of podcasts will answer this question for you with many different facets of why ‘this time is NOT like last time’ regarding a housing boom cycle.

Quote from Ben Carlson Ben Carlson is the director of institutional asset management at Ritholtz Wealth Management. NOT Ben Carson, former presidential candidate.

“Like all previous generations, millennials got older. They decided to settle down and buy a home even though it seemed like that would never happen following the Great Financial Crisis.

And a combination of the pandemic, remote work and low interest rates have all pushed even more people to start buying houses.

Just because prices are rising does not automatically make something a bubble. Sometimes prices rise for good reasons. You may not like those reasons but that’s not the same thing as a speculative mania.”

What are demographics exactly, and why is this a reason the housing boom probably won’t be busting any time soon?

(Investopedia): Demographic analysis is the study of a population based on factors such as age, race, and sex. Demographic data refers to socioeconomic information expressed statistically including employment, education, income, marriage rates, birth and death rates, and more.

So why does this matter:

1.  Millennials are entering the housing market in huge numbers.

2.  Millennials seek bigger spaces, lower-density, and more privacy no matter what percentage of the world gets vaccinated.  They are largely in family-formation mode and looking for a place to buy.

3.  They are a huge generation. Millennials, whom we define as ages 23 to 38 in 2019, numbered 72.1 million, and Boomers (ages 55 to 73) numbered 71.6 million. Generation X (ages 39 to 54) numbered 65.2 million and is projected to pass the Boomers in population by 2028.

Forbes: “Current demographics are very favorable to a sustained housing boom, especially in the wake of the pandemic and as more Millennial households enter into prime homebuying age and start families. More and more households are also demanding more space as they work from home more frequently and invest more in things like home offices and gyms. Finally, homebuilding is still playing catch up as housing supply remains tight from homeowners refinancing and staying put in their homes longer.”

4.  This new batch of motivated buyers are able to lock in super low interest rate mortgage loans with significant downpayments, thus negating much of the risk of defaults.

Easy credit fueled the housing boom of 2005-2008.  CHEAP credit fuels today’s market. There’s a big difference.  The fundamentals today are more sound, according to virtually every economist.

5.  There is no ‘silver tsunami’ of new listings as was once anticipated.  Baby boomers are indeed retiring, passing away and downsizing but the success of VRBO, HomeAway and AirBnB has taken a bite out of otherwise available homes for sale.  This is a factor keeping inventory low and prices continuing to climb.  Supply and demand.

 

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