Title: Demand Among Older Americans Blamed for Skyrocketing Home Prices, Says Barclays
Subtitle: High mortgage rates and limited housing supply are just part of the pricing story, according to analysts
Date: [Insert Date]
In a recent report, Barclays reveals a paradox in the housing market, pointing to the demand among older Americans as the major driving force behind skyrocketing home prices. While high mortgage rates and a shortage of available housing have grabbed headlines, the surge in pricing can largely be attributed to the changing demographic makeup of the population.
Despite experiencing a brief drop late last year, home prices have rebounded since the first quarter, plunging the housing market into an affordability crisis. Middle-income buyers have been particularly affected, as increasingly high prices lock them out of the market. Many experts have blamed this situation on the high mortgage rates, which discourage existing homeowners with lower rates from selling their properties. As a result, inventory remains tight in an already supply-starved market, leading to intense bidding wars among buyers for the limited number of homes available.
However, according to Barclays analysts, this explanation does not entirely capture the surge in home pricing. In a note titled “Blame the Boomers,” the report argues that the aging population in America is actually spurring more household formation, ultimately driving up housing demand and prices.
While it may seem counterintuitive, Barclays explains that as the head of a household gets older, the size of the household actually decreases in terms of people, with children moving out and couples separating due to divorce or death. This leads to the creation of more households as the population skews older. With a steadily growing number of older Americans, the demand for housing continues to rise, fueling price gains.
The report highlights that despite an increase in demand from the 35-44 age group, the vast majority of additional demand is driven by the aging population, specifically the 65-74 and 75+ age groups. Barclays estimates that the underlying pace of new household formation across all age cohorts is approximately 1.3 million units.
Given that less than half of the baby boomer generation has entered retirement by 2020, this trend is expected to persist. Barclays anticipates that the imbalance between excessive demand and limited supply will continue in the medium term, further exacerbated by a scarcity of construction labor and higher borrowing rates.
While the increased demand has led to more construction activity, particularly as interest rates are anticipated to be reduced by the Federal Reserve, it will only marginally ease the inventory shortage. Prices are not expected to align with inflation until the fourth quarter of 2024.
“With overall housing shortages likely to prevail, we think risks to our forecasts for both housing prices and rents are to the upside, especially as the Fed enters its cutting cycle in late 2024,” Barclays stated.
As the housing market grapples with affordability challenges, caused in part by high mortgage rates and limited supply, it is becoming increasingly clear that the aging population’s demand for housing is a crucial factor driving the surge in home prices. This demographic reality presents a complex scenario that requires innovative solutions to ensure housing affordability for all Americans in the coming years.