When a real estate professional needs cheering up-a frequent occurrence these days-all that’s usually required is a peek at the echo-boomers, that coming mega-generation fast approaching home buying age.
However, the lingering recession and the unremitting crisis in the housing markets may wipe away some of those smiles.
It’s clear the “echoes” will spawn a record number of households and boost housing demand but it’s not such a given that they will become homeowners, at least right away. In fact, in the near term, demographic forces favor the rental over the for-sale market. Echoes will make less in real income than earlier generations and tight credit could make it hard for them to get financing. The recession, if it continues, also will reduce immigration, the second major demand driver for housing.
That’s the conclusion of a conservative reading of the latest annual snapshot of America’s housing condition, the State of the Nation’s Housing by the Harvard Joint Center for Housing Studies.
Even a conservative projection puts household growth averaging more than 1.25 million annually over the next decade, thanks to the aging of the echo boomers. The number of echo boomers is expected to eclipse the number of baby boomers when they were 25-44 by more than 5.9 million.
“A severe and prolonged recession may reduce immigration…and the depth of the downturn may, for the first time in at least 40 years, reduce the real median household incomes of each 10-year cohort relative to its predecessor by 2010. Rapid growth in the population under age 45 and over age 65,as well as the rising minority share, will shift the composition of housing demand over the next 20 years. These changes in the age distribution will mean greater demand for both starter homes and rentals, and for seniors housing. In addition, as the baby boomers…The first wave of change will occur in the inner suburbs of large metropolitan areas where people now in their 70s and 80s are concentrated, then fan out,” the report concluded.
Demographics alone won’t be enough to bring about a recovery, and the financing picture is not a pretty one for young buyers. “The home buying market will continue to struggle until the foreclosure crisis comes to an end. Although new federal efforts may prevent millions of families from losing their homes, mounting job losses will likely keep foreclosures at elevated levels. At the same time, falling prices are keeping potential buyers on hold while locking millions of potential sellers in their current homes. Tighter underwriting standards also present higher credit, income, and wealth hurdles to homeownership. While down payment requirements may ease when lenders sense that home prices have reached bottom, stricter caps on mortgage payment-to income ratios and thorough verification of income will likely remain in place for some time. Credit standards will probably be the last to loosen, given the abysmal performance of subprime loans,” the study found.
Whether “echoes” can afford to become homeowners largely hangs on the success of government efforts to revive the economy and the housing markets.