As we have all seen, the middle aged "trade up" buyers, who dominated the market 5 years ago, have now been replaced by a maturing Generation Y.  

Generation Y is not only a large demographic group, they are the drivers of market demand.  They were born between 1977 and 1997 - the children of the Baby Boom.

So, what happened to Generation X (those born between 1965 and 1976)?  They are a smaller age group, (also known as the "Baby Bust").  They also are not moving as much as their before and after generations.  As the Baby Boomers age, (who fueled the McMansion inventory of housing), the demand for new home sales will continue to decrease as Generation X is not large enough to fill the existing inventory nor do they have the financial strength or desire to "trade up" like the Baby Boomers.

Just as the 1990 housing recession left a huge inventory of starter homes, the current downturn is now leaving behind a surplus of large homes.  As Baby Boomers age and become less mobile, they will continue to "downsize" and will have very low rates of household mobility.  The big question is, how many will be able to downsize and how many will need to age in place due to the lack of equity in their homes?

In the recent housing cycle, very few rental units and starter homes were constructed.  Because of the small size of Generation X, this was not an issue as they were easily able to find housing in the smaller homes and apartments vacated by the Baby Boomers.  As Generation Y now looks to take over these homes from Generation X, there is a shortage of affordable homes relative to the demand (since Gen Y is so much larger than Gen X).  In areas with population growth, affordable new construction will be needed to prevent shortages.

Then there is also the issue with Gen Y having a more difficult time becoming homeowners.  Downpayment requirements and increased credit standards may cause many in Gen Y to put off homownership until later in life than previous generations.

Gen Y is also the "green" generation.  They do not want long commutes, high energy costs or traffic congestion.  They are young urban workers who want to live where they work and they want housing there that they can afford.  Mixed-income and mixed-use communities at urban centers will be in demand.

Tina in Virginia