The Fuel for Home Buying

Written by: David Lereah   Tue, March 24, 2009 Market Activity

Population factors are the primary fuel behind home buying. The more people (households) living in a neighborhood, the greater the demand for homes. The operative adage is that high population growth rates are good for housing, while low population growth rates are not.

The population of a local market influences property sales and values through: (1) internal population growth; (2) household formation; (3) net migration; and (4) demographic trends. Internal population growth is the difference between birth rates and mortality rates in a local market. Household formation includes single person living by himself, to a married couple, to a mother and/or father living with children, to a married couple living with children. Migration is the term for people moving from one location to another. In-migration represents the number of people moving into an area, while out-migration is the number of people moving out of an area; the difference between the two is the net migration. Demographic trends involve the movements of the different population groups including retirees, baby boomers, the baby bust, immigrants, and echo boomers.

Although housing demand is primarily weak today because of non-population factors such as falling home prices, job losses, decreased wealth and declining consumer confidence, population factors are also contributing to sluggish demand. Today’s recession has influenced population changes that are negatively impacting housing demand.

Household formation has declined due to the harsh recession as more young households are choosing to live with their parents to make ends meet. In addition, households are moving less because of poor business conditions which means they are staying in their homes rather than purchase another home in a different location. Finally, the pace of immigration has slowed during this recession, probably because America no longer presents the land of opportunity as job losses continue to mount.

Within the nation, migration patterns have changed due to the recession. The Census Bureau’s latest annual population estimates in the 12 months ended July 1, 2008, reveal that the pace of out-migration slowed in the Northeast and Midwest regions, while the pace of in-migration slowed in Florida and the Southwest region. The South region, excluding Florida, experienced the greatest growth in population. It is apparent that falling home values have negatively impacted the state of Florida.

There is no doubt that today’s recession plays an important role in population trends which in turn, affects home demand and values. Until the recession subsides, we expect continued weakness in the pace of immigration and the pace of household formation and mobility. The negative news on population measures are the unintended consequence of the economic and housing downturns.

Leave a Reply