As promised yesterday, the blog today looks at the wider impact of the major changes underway in housing markets. Driven by the ageing BabyBoomers these changes are, in effect, like throwing a series of large stones into the middle of a pool of water – the ripples spread wider and wider as the impact grows.
One key change, as the Pew Institute continues to report, is that the US is steadily moving back to high levels of multi-generational homes:
- As many as 1 in 4 young adults were living at home in 1950.
- But by 1980, only 1 in 10 young Boomers were still living at home with parents.
- Today we are ‘going back to the future’, with 1 in 5 young adults living at home with parents
- And their numbers are rising all the time.
This has wider implications as housing is also a motor for other parts of the economy. Multi-family units require only half the number of people to build them – 1.8 people are employed to build each multi-family, versus 3.7 for a single family home. They also use less material when being built – bad news for the chemical industry, for example, when each new single home uses $15k of chemicals, according to American Chemistry Council data.
Unsurprisingly, US house prices are beginning to weaken again as the impact of stimulus policies disappears. Last week’s S&P Case-Shiller Index showed average prices in the 10 largest cities back at September 2013 levels. And the outlook is not good, with affordability being hit with mortgage rates now at 4.5% versus 3.6% last May.
Thus mortgage lending fell in Q1 to a 14-year low, leading to talk of a shakeout getting underway in the mortgage finance industry. As the CEO of the Mortgage Bankers Association warned:
“This change is much more structural and will be longer lasting. It’s a classic supply-and-demand scenario. We have an excess supply of lenders and a lack of demand.”
Equally important, as the chart shows, is that the changes taking place in housing markets (red line) are likely to impact new auto sales (blue line). These markets have moved in parallel over the past 40 years, and it is already possible to see what is likely to happen:
- One obvious point of connection is that “as we age, we driver fewer miles“, as the US Dept of Transport notes
- Their data shows those aged 74+ drive 60% fewer miles than those aged 34 – 43
- Not only do the kids no longer need a taxi service, but retired people no longer need to drive to work
It is also becoming clear that we are only in the very early innings of these changes. One key trend, as the blog will discuss tomorrow, is that older Boomers are now choosing to move back into cities in large numbers.
Companies that missed the first wave of these changes are already on the back foot. They need to catch up quickly, before they are completely left behind.
THURSDAY EVENING UPDATE: 43% of US homes were bought with cash in Q1, according to RealtyTrac. This was more than twice the 2013 level, and confirms not only the shakeout now underway in mortgage lending, but also the weak outlook for housing itself. First-time buyers are being priced out of the market, and can’t easily get mortgages as they are more likely to belong to lower-earning minority communities.