How demographics will drive housing in the next 5 years

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about demographics, and how demographic shifts are going to influence housing over the next five years.   Related to this episode:   Rental vacancy data shows progress that can keep mortgage rates lower  https://www.housingwire.com/articles/rental-vacancy-inflation-mortgage-rates/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   To learn more about Trust & Will visit trustandwill.com   The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage an

Transcript

00:10Welcome, everyone. My guest today is lead analyst Logan Modashami to talk about demographics and

00:15how demographic shifts are going to influence housing over the next five years. As always,

00:20I want to thank our sponsor, Trust in Will, for making this episode possible.

00:24Logan, welcome back to the podcast for this special bonus episode.

00:29Yes, I'm in snowy Utah, which for the first time in my life, we were trying to land the plane.

00:35And then I was like, you know, how does anybody see outside this? And then all of a sudden,

00:40you know, we just go vertically up, you know, and everyone was like, and I was like, you know,

00:45looking at the guy next to me, hey, listen, this is the end, you know, we die in Utah.

00:52That's terrible. I would be so, you know, I'm not a great flyer. Oh, I am not a great flyer.

00:57That would have been bad. Yeah. So everyone gets, I, you know, I assume everyone experiences

01:01that at some point in their life. But yeah, that was a pretty, pretty gnarly.

01:07Well, glad you got there safe. Okay. So I asked you to do this episode because I really wanted

01:12to talk about demographics. And that's because when I first, when you first started writing for

01:17Housing War in 2019, 2020, when I first started editing you, demographics was part, a huge part

01:23of, of what you were using to look towards, you know, 2020 to 2024, you were, you had looked at

01:29it

01:30and you're like, listen, we're going to have this huge demographic patch of the millennials hitting

01:34their prime peak home buying age. And, and this is going to change, you know, the dynamics of the

01:40housing market during this time. And you had said this for like 10 years, right? So I've wanted to

01:45follow up with that. And we've talked about demographics in different ones of our podcasts

01:50lately. So let's dive in there. What, where are you, what do you look at demographics right now?

01:55I mean, to me, years 2020 to 2024 was peak forever in America. That was, that was the prime

02:03home buying demographic patch. And we're never going to replicate anything like that ever again.

02:10Now, when I first started writing about housing economics in 2007, the prime age population growth

02:15peaked, it slowly declined. And I thought that was a big variable that never really got discussed.

02:22Economics is demographics, labor force growth. It does kind of also explain the late seventies where

02:28our labor force growth really took off and home buying really took off and prices and everything

02:34took off back then. But here we had to work ourselves back to prime age population growth

02:40growing again. And that was always going to be years 2020 to 2024. So when you think of the five

02:46scale buyers, right? Silo generation, Gen Z, millennials, baby boomers, and Gen X years 2020 to 2024,

02:55because so many millennials were ages 28 to 35, that you can have enough demographic demand to get total

03:02sales above 6.2 million, which I said never can be the case in the, in the last decade. And

03:09that

03:09initially started that way. And then prices escalated on patrol. Very funny. It's similar to the degree

03:15of the late seventies also. And then kind of sales crashed. And when I, when I, when I say it's

03:23the lowest

03:23sales ever, you take households and you're talking about 2022. Now, I mean, just every, everything right

03:30now from 2022 is the lowest home sales ever recorded in history. When you take households

03:35and labor force growth and everything. So that was more of an affordability thing. If you had

03:40better affordability, sales would be much higher. It's kind of like the new home sales market. It's

03:44still at 2019 levels, but that was kind of it. You know, I, I didn't plan on writing anything

03:50after 2024. I know that was, that was kind of the demographic peak. And then now you just work off

03:59of the supply and demand equilibrium affordability with the five scale buyers. Then you have cash

04:06buyers, investors, and you just kind of work off that. What, what happened was really when home sales

04:11crashed, they did in 2022 and they've stayed here. What they've done is they built up a bigger,

04:19bigger, you know, sideline home buyer, like you like to call it out there, but kind of the,

04:25the demographic story for America is, is over in that sense that the population growth is slowing

04:32down here. If immigration doesn't come, you know, you're, you're, you're, you're just not going to

04:37need as much housing going out in the future decades. And when the baby boomers die off and they give

04:43their homes to their kids and what their kids do with it, that's just, you know, an economy getting

04:50more mature. It's part of the reasons, you know, the last podcast about, you know, I don't believe

04:55we're in a construction boom is, is because of this. If you had bigger population growth and

05:01that continuing, it'd be a different story, but, but years 2020 to 2020 to 2024 was like that peak

05:09once in a lifetime period. Okay. So I, I hear that, but then we had COVID and it feels like

05:15we never got to that peak for your, to your point about home prices. And so I'm like,

05:19where are those people? And did, did we just push them into, you know, the next three or four years

05:24or are they just gone? We got, we got the total home sales to get above 6.2 million. And

05:31that was

05:32something that I never thought could happen. Okay. So that's existing home sales. So that's existing

05:39there. It was very brief because the problem would happen with COVID is that for the first

05:44time in our lifetimes as a country, we actually had an inventory shortage. I never believed the

05:50inventory shortage before. I always thought it was a marketing gimmick, but here, like authentically

05:54the supply and demand equilibrium was completely broken. This is the whole unhealthy, very unhealthy,

06:00savagely unhealthy, healthy market. So people are there. We still have over 162 million people working,

06:06but now because of qualified mortgage and everything, you do need affordability to get

06:10better, to get some transactions going. And again, most sellers are home buyers. That seller

06:15does need person to buy that house. Typically has to be a mortgage buyer. Then that person could sell,

06:21buy another house. And that's how the transaction model goes. But the demographic story was just a

06:26buildup to years, 2020 to 2024. Now millennials are big. Gen Z are big. Gen A is big. The baby

06:35boomers

06:35are living longer. Gen X has, we have a whole much of time before we start passing off. So we

06:42kind of

06:43have that. We still have that kind of stable demand curve, but that was, you know, when you look at

06:49the

06:49demographic patch, that was the once in a lifetime kind of period where the housing bubble years had

06:54more home sales, but that was at a credit, that was a credit growth. That wasn't, you know, so much

06:59demographic, we just expanded credit so much that sales and debt were adjusting to inflation and all

07:06that stuff was booming. We never had that market, but yeah, I mean, it's so much, it's always been so

07:13much of my work, but it was also the reason why I thought the last decade would have the weakest

07:19housing recovery ever, but also years 2020 to 2024, you build your household formation.

07:25The, the, the, the simple skin I do, we rent, we date, we mate, we get married three and a

07:29half

07:29years after marriage. We have kids, people buy single family homes. They don't live in apartments

07:34and there it was. And affordability really impacted that during COVID.

07:39So I think that the reason I ask is I'm like, if that was the, if that was the biggest

07:44patch we had,

07:44I'm like, that's not good. That didn't seem like it didn't feel like it was pretty big.

07:48That was the biggest patch we'll ever see. And that's why I'm not, we, we've, we've talked about

07:54this for, for five years. I am not a sales boom person. I don't believe in the theory of existing

08:01home sales booming as much as people think because housing tenure has changed. So the trans, the

08:07transaction models have changed with that. So that's it. And then death comes, right? Baby boomers

08:16are going to retire and they're going to die and they're not going to take their homes with them.

08:21Right. This is one of the reasons why I'm not a construction boom because over the, over the

08:24future, it's not the silver tsunami that people thought that it downsides anything, but you cannot

08:30stop death. So what their children do with their house and everything that that's more of a 2035

08:36and on story. But for me, it's like, that was a period. And I was literally going to stop writing.

08:42I thought I could run this whole cycle for until 2024 and then end it. But now because sales have

08:49crashed so much, we're not going any lower really in existing home sales. It's never really closed

08:55below 4 million for a calendar year. But we have stable demand, but again, population growth is

09:02slowing down. So you don't have this, like you're a young country where you're just booming with the

09:08labor force growth and everything. We have over 162 million people working. It doesn't take much to

09:12move the needle when existing home sales are working at 4 million. And we just kind of work

09:16off of, of that dynamic. Okay. So let's, let's compare. So, you know, we know that, uh, the

09:23millennials were such a big generation. What does Gen Z look like in comparison to the millennials?

09:28So there's always a bunch of numbers out here. Uh, millennials, 75, 77 million of them out there.

09:37Um, Gen Z 68 to 71 million. So they're big, you know, again, uh, compare it to like, if you

09:46put both

09:46of those two together, they're bigger than the total population in Japan, it's over 140 million.

09:51So you have, you have replacement consumers and buyers. You don't have a demographic cliff

09:56like other countries do. Uh, but in a sense, you know, you, you, you have one generation that's

10:02leaving, right. Uh, uh, Gen Z right now, there's more Gen Z workers than baby boomers. Now, uh,

10:08just to make sense, just to give me a kind of idea. I think baby boomers are slightly under 17

10:13million

10:13and Gen Z is over 17 million that are working, uh, right now. So they're still in their young phase,

10:20uh, and they give you that replacement consumer and worker out there. But if you're talking about

10:25growth, like a country dying is a country that's population growth is, is, is going down. Right.

10:32So things change about that. And, uh, um, but having the millennials and Gen Z, and then eventually

10:39Gen A will come out there. You have good replacement. That that's kind of how I look at it. I,

10:44I use the

10:44term replacement consumer and worker and buyer rather than growth, but years 2020 to 2024 was like

10:52a very unique once in a lifetime patch in the demographic. So we have, we have so many people

10:57working still. We have 162 million people working, right? So it doesn't take much to move the needle

11:02with existing home sales around 4 million, but affordability does have to get better, but

11:07kind of that peak home buying demographic patch were all five. And then the millennials were there

11:13was really years 2020 to 2024. When you look out for the next five years, so 2025 through to 2030,

11:20I know we're in 2026. What do you, what do you see is like, you know, just steady, like not

11:25a huge

11:26drop-off or are we going to get some of those sideline buyers to come back in? Because home sales

11:31crashed and they're so low, it changed the parameter. Like hypothetically, let's just say existing home

11:37sales were at 6 million during this period of time. I would say, you know, this is going to be

11:43a very

11:43hard number to keep going. Okay. Because we just don't have that. We don't have the population growth

11:48or the demographic growth to, to really push sales like that. But now because home sales fell so much,

11:55it becomes, it becomes more tricky now because you already had the sales crash, but if affordability

12:00does get better, you grow the buyer pool. So you can have years and years of sales growth from this

12:07very depressed level of sales, just due to that, because you do have 162 billion people work. You do

12:12have 140 million young people still out there. And millennials tend to buy homes later in life.

12:18So will Gen Z. You still have Gen X, move up, move down. You still have the baby boomer,

12:22silent generation, still cash buyers, investors. That's how you still have near 5 million total home

12:29sales. In 2023, 2024, 2025, you're going to have it in 2026, maybe even slightly above 5 million total

12:37home sales there. That in itself shows the demographic power where if you didn't have the

12:44millennials or you didn't have Gen Z, you're basically Japan, right? And then, and then that

12:49would not be good. That's, that's the whole, the whole dynamics of everything. Again, economics is

12:54demographics, people consume, people buy, people work, right? So you, you need to replace your older

13:00workers with younger people out there. That's the benefit and advantage of the U S but it's, it's a little

13:07bit different now because sales have fallen so much. And to me, it's, you're, you're, you're,

13:11you're about, you know, 1.3 million every single year that, you know, you stay around 4 million

13:16existing home sales. So you, you're missing like 4 million traditional buyers right now at this stage.

13:22And because of that, it changes the dynamics a little bit out there where if this was 2026 and

13:29existing home sales were at 6 million, I'd be, listen, this is really hard to keep this level here

13:36because when I say it's really hard for me to have total home sales go above 6.2 million,

13:41that's existing in new home sales combined, right? So these just had a nice little window,

13:46that little five-year period where that could be the case. And then there it goes. And remember,

13:51housing tenure is, is part of this equation. We live in our homes longer and longer. And if you

13:56don't sell your homes and move, the transaction models are different out there. So, and, and, you know,

14:02I think the new home sales sector really is showing this aspect where new home sales are still at 2019

14:07levels. If we're at 2019 levels, existing home sales were like five to 5.3 million. So that's

14:13one to 1.3 million higher than where we are right now, but the builders can do it because they've

14:18always offered lower rates, new products they capture, right? They're such, they're a smaller

14:23player. They can capture some of that existing home buyers. And it makes sense, right? Brand new home,

14:28lower rates, lower rates. There you go. So advantage, disadvantage, that's where the builders

14:33actually have their advantage. And their purchase application data that came out today, they have a

14:38monthly purchase application data, not only like weekly, and they're up 2% year over year. Their

14:42sale levels are near multi-year highs, still stuck around 2019 levels, but that's, there's a huge gap

14:49between the new and existing home sales market. Logan, thank you so much for getting on and walking us

14:53through this. All these questions I've been wanting to ask you, but it was like, you know, it doesn't

14:56really always fit into the other things we're talking about, but appreciate you keeping your

15:00eyes on this for all of us and explain. Yes. And I'm glad I landed, we landed the plane here

15:05in Utah.

15:06So glad you're safe. Yeah. Stay safe and warm. Thanks.

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