This demographic shit has also been playing a role in both the lack of inventory and in the slowness in new home sales over the past several years.

Here’s Why Generation X is a Driver of Low Housing Market Inventories

Here’s Why Generation X is a Driver of Low Housing Market Inventories

Several factors are driving low inventories in housing markets across the United States. But here’s one that you may not have realized is having a big impact: fewer potential buyers in their 30s and 40s.

Over the last decade, members of Generation X – those now in their 30s and 40s – have replaced the large baby boom generation. But the Gen X population is much smaller. In fact, in the 35- to 39-year-old age group, the population in 2013 was 9.3 percent smaller than it was a decade ago. And that has translated into 10.4 percent fewer households, according to Harvard University Joint Center for Housing Studies’ Housing Perspectives blog.

This demographic shift has also been playing a role in both the lack of inventory and in the slowness in new home sales over the past several years.

“Indeed, the ongoing generational shift among American households has slowed sales in the short run and is likely to continue to dampen sales over the next two decades,” writes Dan McCue, senior research associate for Housing Perspectives.

For 37 months, a seller’s market has been the norm. In such a market, there is normally less than a six months’ supply of homes listed for sale. With fewer homes available for sale, buyers are finding steep competition in some markets that have pushed up home prices.

The home ownership rate has dropped considerably, particularly among 35- to 44-year-olds. Home ownership rates among Gen Xers – mostly those in their 30s and 40s – are most significantly below 20-year historical rates for other similarly aged adults.

“Traditionally, the 30s and 40s are key ages for housing market activity – particularly for trade-up and new home purchases,” writes McCue. “Indeed, homeowners aged 35-44 historically make up the majority of trade-up buyers.”

Moreover, trade-up buyers often shop for a new home. Indeed, 35-44 year olds are also typically responsible for a high share of new home sales. So fewer current owners in this age group has also meant fewer potential buyers of new homes.

Other better-known factors affecting low inventories, according to Housing Perspectives, include:

  • the large number of owners stuck in homes because they are ‘underwater’ on their mortgages;
  • the still-elevated volume of homes in the foreclosure process and held off the market;
  • the lack of new construction in the years following the housing boom;
  • and the many single-family units that have been taken out of the for-sale market to become rentals.

 

 

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