Legitimate reason for optimism

Real Estate Broker/Owner with Susan Rossi, RE/MAX 2000

Before anyone is allowed to print anything regarding the condition of the housing market, they should be required to read Harvard University's Joint Center for Housing Studies report published in July. Kind of like continuing education.

The housing market is driven by supply and demand. The people provide the demand and the level of demand is consistent with the number of people who need the product.

We had a boom, a bust and another boom. No, not housing booms - birth booms. There was a baby boom. They created demand for housing at a rate consistent with the number of them who reached the average age of household formation. When the Boomers were buying their first homes, the average age of first-time buyers was 25. They marched into the housing market, gobbling up starter homes, reselling to their younger counterparts and driving the new construction industry through the roof.

Then there was a bust - a significant drop in births in the 1970's. Thirty something years later and the market is experiencing a drop in demand as a direct result of a lack of thirty-something consumers reaching the average age of household formation. Remember in 2006 the average age of first-time buyers (NAR statistics) was 33. Births dropped in 1973. Do the math. The experts should not have missed the crash of 2006, it's inexcusable and was easily projected.

Missing from the news is the projection of the next boom. It's right around the corner and brings legitimate reason for optimism. The average age of first-time buyers is now 30. The generation under 30 is enormous - as large as the Baby Boom. This generation is on the threshold of entering their household formation years and they will do so in numbers which rival the Baby Boom.

However, they won't come in on a 1:1 ratio, meaning the demand will be consistent with their numbers. Every one of them (and there are more of them than Boomers) will generate three or four sales for the Baby Boom sellers. They'll buy a small house, so someone can trade up and someone else can build. The next boom has the potential to make the last one look like a joke.

If there is a single silver lining in this mess it's the clearing out of the sub-prime mortgage products which did, indeed, mislead many unsuspecting people to believe they could afford a home beyond their means. Those products are gone and it's a blessing for the next wave. However, bad products didn't cause this mess. The drop in demand caused this mess. Previously, with sufficient demand, even those who found themselves in financial distress could achieve a sale and get themslves out of whatever they found themselves in. With no one coming in at the bottom to create absorption, those in financial distress could not outlast the time frame allotted by the lenders and foreclosures were bound to rise.

It's important for the sake of confidence that people are given all the factors which played a role in this. The next wave of demand is right around the corner, and these young buyers stand to reap the benefits of a solid financial future by purchasing a small home now at the bottom of the market and watching as their counterparts march into the market and drive their equity up, just like the Boomers did. Yes, it's really okay to give your adult child your encouragement to buy a starter house in these conditions. They'll do just fine.

Comments (2)

Lori Cain
eXp Realty - Tulsa, OK
Midtown Tulsa Real Estate Top Producer


This is a GREAT post. You have the option of posting this withing FIVE GROUPS in Active Rain also. If you don't know how to do this, call me.

When I started posting, I watched to see which "groups" others were posting in -- you can see it at the bottom of their post next to the tags.

I'm definitely going to re-blog this!

Sep 09, 2009 01:58 AM
Susan Rossi
Susan Rossi, RE/MAX 2000 - Crete, IL

Thanks Lori! Thanks to your suggestion, I figured out how to join groups (wasn't in any at all) and posted it to my groups. I appreciate the re-blog very much, it's a compliment. Hope you're having a great year.

Sep 09, 2009 04:15 AM