Tuesday, March 12, 2019

Goldman: "The Housing Rebound"

by Calculated Risk on 3/12/2019 12:54:00 PM

Goldman Sachs economists Struyven and Young write: The Housing Rebound.

They see three reasons for a rebound in 2019:

1) Recently high frequently indicators (like starts and permits) have picked up.

2) Mortgage rates have fallen year-over-year. Struyven and Young note: "the headwind from higher interest rates should gradually diminish, as mortgage rates likely peaked late last year." emphasis added

3) Demographics are favorable as a large cohort is moving into the prime home buying age. This is a point I made in Demographics: Renting vs. Owning    This is what I wrote:

Population 20 to 34 years oldClick on graph for larger image.

This graph shows the longer term trend for three 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: current 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 peaked in 2018 / 2019 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak around 2023.  This suggests demand for apartments will soften somewhat.

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 decade.

Demographics are now positive for home buying, and this is a key reason I expect single family housing starts to continue to increase.