CHM Blog

Housing Demand Faces Historic Slowdown Due to Aging America

Home prices never seem to do anything but go up. And as Real Estate News’ DaveGallagher reminds us, the housing shortage in the U.S. is seen as a key driver of high home prices and a contributor to the country's affordability crisis.

But, he says, if household growth slows in the coming decades, supply will catch up — leading to a significant shift for the homebuilding industry. “Growth patterns are already changing: In the 1990s, 13.5 million new households formed; during the 2010s, growth fell to 10.1 million — and the slowdown is expected to continue,” he reports, citing a new report from Harvard University's Joint Center for Housing Studies.

Gallagher’s research tells him that population growth could come to a halt in a decade. “Over the next 10 years, just 8.6 million new households are expected to form, and between 2035 and 2045, the pace could slow to 5.1 million, the research suggests. If that proves to be true, it would represent the fewest new households of any decade in the last 100 years.”

He cites demographic shifts as the culprit: “According to population data from the U.S. Census, the number of children under age 5 decreased by almost 9% between 2010 and 2020, while the number of seniors over 62 increased by more than 36%,” he says. The report’s author, Daniel McCue, adds that if the trend continues, in the coming decade, rising mortality and fewer births among an aging population are expected to first slow and then turn negative the growth in the native population. That will leave future population growth entirely dependent on future immigration.

The demand for newly-built homes is expected to remain fairly strong in the short term, however, as the report estimates 11.3 million new homes will be built between 2025 and 2035 — more than the 9.9 million units built in the 2010s, but less than the 17 million built between 2000 and 2009.

Ten years from now? New home construction is expected to slow, with the report forecasting 8 million units built between 2035-2045. “That's because Gen Z and Gen Alpha — the next big wave of homebuyers — are smaller than the baby boomer and millennial generations, said Robert Dietz, chief economist at the National Association of Home Builders,” he says, adding that the demand for remodeling and tear-down work will increase as the housing stock ages.

"So when you put it all together… it suggests that the back half of this decade will have a good runway for growth in order to reduce the existing deficit," Dietz said, adding that the 2030s will be a time of adaptation for homebuilders.

Immigration, however, is hard to predict. For forecasting purposes, McCue used net immigration levels of 873,000 per year, similar to levels seen in the 2010s. "But even under significantly higher assumptions for future immigration, household growth is expected to decline over time due to the projected decline in natural population growth," he wrote.

Dietz says it's too soon to say what immigration levels will look like in the next 10 years. “Much will depend on the Trump administration's policies, enforcement efforts and budget allocations around immigration. In the coming months, we're going to get a sense of what this will involve, not only for housing but also the impact on sectors that typically depend on immigration for their workforce," Dietz said.

Also a factor cited in the report: By 2035, the number of households headed by a person over 80 is expected to increase by nearly 60%, which will likely mean more multigenerational households as well. Households that include an adult and their older parent(s) are projected to rise from 4.8 million in 2025 to 6.3 million in 2035.

RealEstateNews, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Higher

Mortgage rates are moving hgiher today. The MBS market worsened by -54 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Higher

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Inflation, 2) The Fed and 3) Retail Sales.

1) Inflation: This week we get important readings with PPI, CPI and Import Prices with the bond market giving the most weight to Headline CPI.

2) The Fed: The bond market has priced out zero movement from the FOMC at this January's meeting. This is the last week before the media "black out" period starts and its the last opportunity for any Fed representative to get their message out. We will also get the Fed's Beige Book which is prepared in advance of the next FOMC meeting.

3) Retail Sales: Outside of the inflationary data sets that will be released this week, the most important economic release is Thursday's Retail Sales. The stronger this report is, the worse it will be for rates and vice versa.

This Week's Potential Volatility: High

This morning markets are still under pressure after last week's data. Volatility has started at moderate levels but will increase on the inflation and retail data.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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