by Bill McBride on 12/01/2014 01:36:00 PM
Monday, December 01, 2014
It was over four years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive. (note: the beginning of this post is from an earlier post on apartment supply and demand).
The drivers were 1) very low new supply, and 2) strong demand (favorable demographics, and people moving from owning to renting).
The demographics are still favorable for apartments, since a large cohort is still moving into the 20 to 34 year old age group (a key age group for renters). Also, in 2015, based on Census Bureau projections, the two largest 5 year cohorts will be 20 to 24 years old, and 25 to 29 years old (the largest cohorts will no longer be the "boomers"). Note: Household formation would be a better measure than population, but reliable data for households is released with a long lag.
Click on graph for larger image.
This graph shows the population in the 20 to 34 year age group has been increasing. This is actual data from the Census Bureau for 1985 through 2010, and current projections from the Census Bureau from 2015 through 2035.
The circled area shows the recent and projected increase for this group.
From 2020 to 2030, the population for this key rental age group is expected to remain mostly unchanged.
This favorable demographic is a key reason I've been positive on the apartment sector for the last several years - and I expect new apartment construction to stay strong for several more years.
The second graph shows the longer term trend for several key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).
This graph is from 1990 to 2060 (all data from BLS: 1990 to 2013 is actual, 2014 to 2060 is projected).
We can see the surge in the 20 to 29 age group (red). Once this group exceeded the peak in earlier periods, there was an increase in apartment construction. This age group will peak in 2018 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak in 2023. This suggests demand for apartments will soften starting around 2020 +/-.
For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior). The population in this age group is increasing, and will increase significantly over the next 10+ years.
This demographics is positive for home buying, and this is a key reason I expect single family housing starts to continue to increase in coming years.