The (Scary) Forecasted Demographic Impact on Housing Prices

The (Scary) Forecasted Demographic Impact on Housing Prices

Last week we issued a Renter’s Manifesto of sorts, which took a look at the virtues of renting (versus buying).  One of the items we touched – demographic trends here in the US, which are not as favorable to housing as they’ve been over the past 50 or so years.

On that thread, Symmetry Capital Management published a piece for Seeking Alpha, taking a look at on the effects of population age structure on home prices:

The results suggest that global asset prices are likely to face substantial demographic headwinds in the next forty years. The theory is straightforward: House prices are determined jointly with financial asset prices. Hence, if house prices face headwinds, so should financial asset prices. Using the estimated coefficients and global population forecasts, asset prices would face headwinds up to a full percentage point. This headwind is substantial, but based on historical returns would not imply real asset price declines…

Though the results do not imply absolute real price declines, they suggest that in the next forty years house prices in advanced economies will face a more difficult environment than in the past forty years.

Read the full piece On Demographics, Asset Prices, and Debt here.

Here’s an interesting chart from the demographic study, which breaks down the demographic impact on housing from the last 40 years – and the next 40 projected.  Take the magnitudes with a grain of salt of course – I think the bottom line is that many English speaking countries will see headwinds on asset prices (housing included) in the years ahead.

Demographic Impact on Housing Prices

Source: Seeking Alpha