The Real Deal

Baby Boomer demand has impact

Aging baby boomers will have a positive impact on housing demand through the turn of the century, cites the results of a study released by the National Association of Realtors. The report, "The Effects of Demographics on Future House Prices," was written by Dr. Dowell Myers and John R. Pitkin of the University of Southern California.

It found that as the baby boom population grows older, people in that age group will continue to buy homes, resulting in steady sales and stable home values throughout the next decade. The study refutes reports predicting that home purchases by baby boomers will taper off as the generation grows older, thus forcing real home prices to decline.

As baby boomers grow older, their housing needs will continue to change, causing an actual increase in housing demand and in home prices. "Baby boomers will not stop buying homes just because they are growing older," said Jeff Barnett, president Silicon Valley Association of Realtors. "There will be an ongoing need to meet vastly diverse housing requirements--for affluent trade-up couples, baby boomers approaching retirement, and growing numbers of non-traditional households. We are looking for many years of steady growth in the residential sector."

The report contends that shifts in population composition, not just population growth, often drive change in housing demand. "Rapid population change may alter both the consumption preferences and the effective demand of the total population," the study says.

The report evaluates the housing consumption of cohorts--people who are born in certain time periods and then move through age groups as they grow older. The study notes that measures of life cycle changes in housing demand, derived by tracking generations of Americans over a 30-year time span, provide a sound basis for forecasting future activity.

Based on the performance of their predecessors, the baby boom generation will continue to create activity in housing markets for years to come. "The importance of this finding is its implication for the future impact on the housing market of the large baby boom generation," Barnett said.

The study projects that per capita housing consumption for the oldest members of the baby boom generation will not even start to fall off until after 2015, when they reach 70. The research counters "doomsday" reports claiming home values will drop due to the smaller size of the generation following the baby boom group.

"As the leading edge of the baby boom moves through its peak earning years, demand will pick up for second homes and retirement homes," Barnett said. Additionally, some baby boomers previously unable to purchase homes will be buying. Increased savings by baby boomers, combined with a hopefully larger Social Security trust fund and what likely will be a smaller federal deficit, will keep interest rates low over the next several years. The baby boom generation will have a continued positive effect on future house values.

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