This week I will have a three part series on housing which touches on a few different aspects of the industry and its impact on the economy. What follows is Part 1 which takes a look at the underlying housing demand fundamental and demographics. In Part 2 I will cover recent changes in housing affordability and in Part 3 I will introduce a newer and improved version of the housing and related industries for employment.
At the Southern Oregon Economic Summit there was one housing graph in particular that stood out to me from the National Association of Home Builders’ Chief Economist David Crowe. I intentionally left it off the Summit summary post a few weeks back because I wanted to focus more on it. It is both elegant and simple, the best kind of graph and it tells quite the story for the underlying fundamentals for both the housing industry and the economy more broadly.
You can clearly see the Baby Boomer cohort in the graph which was then followed by the children of the Silent Generation which was a smaller age cohort. Following that you see the echo Boomers moving into their 20s (and some into their 30s). While we know this demographic pattern in general what are the economic consequences of this? We have (or are about to) a generation of young adults transitioning into adulthood and if the economy is strong enough into jobs, higher incomes, purchasing cars and moving out of their parents’ homes into apartments or buying homes themselves. The factoid highlighted in yellow means that over this transition period from college age to mid-30s the headship rate (household formation, effectively) triples from 16% to 48%. Generally we also tend to think of this in terms of marrying and starting a family during these years. Along with it are increases in homeownership, also via NAHB’s Crowe.
Certainly ownership rates have fallen (some considerably) since the bursting of the bubble, however as you move from your 20s into your 30s into your 40s and 50s, ownership rates jump dramatically. There has been some research indicating that today’s youth are less likely to take on debt related to automobile purchases or homeownership. Some of it may be a cultural shift, and we know that today’s youth are saddled with higher student loan debt which does impact their ability to take on additional, more traditional, debt like car and home loans. However, as seen in the first graph there is a very large cohort of young adults transitioning in the coming decade and they will have an impact on the economy. As Baby Boomers continue to retire en masse, the children they left behind (plus the migration that has occurred over these years as well) will replace them in the economy and in demand for housing. The stronger the economy and the better job opportunities out there, the stronger this impact will be.
In terms of Oregon, our age structure largely looks similar to the nation however we do have one important difference.
While the echo Boomers (plus migrants) are, roughly, of the same size as the retiring Baby Boomers, notice how in the yellow highlighted portion, which is the same as the national version above, Oregon does not have declines. This is likely due to our strong in-migration from elsewhere helping to fill in our demographic gaps. Mark is in the process of writing a more detailed analysis of our migration trends and their impact on the economy so I will leave to the side this part of the discussion for now. However I will add that while the state appears to have a more balanced overall age structure than the U.S. it is not uniform across the state. The gap seen in the 25-35 age cohort at the national level is filled in for the Portland MSA while not for the rest of the state. Furthermore, if you go county by county even in Portland it is not uniform either. That bump in 25-29 year olds is all about Multnomah County and a little about Washington County while the other counties in the MSA see structures similar to the nation.
In terms of homeownerhips rates and household formation, Oregon is very similar to the U.S. overall. Going from college age to mid-30s homeownership rates increase by a factor of 5 and the share of the population that is part of a household more than doubles. With such a large age cohort entering into this transition period, which may take a bit longer this time due to the lackluster economic recovery to date, it does bode well for future economic activity over the coming decade or so.
Finally, in terms of homeownership rates by household structure, the highest ownership rates are for married families, while all other household types have significantly lower ownership rates.
Check back in the coming days for Part 2 on housing affordability and Part 3 on housing and related industries employment.