This chart helps explain why the U.S. housing market is looking a bit soft after strong growth in 2012 and 2013. It shows that the number of employed people aged 25 to 34—prime candidates for buying houses—is lower now than it was in the 1980s. It’s hard to expect much of a lift for housing amid a dearth of fresh, real demand—not just demand from investors and speculators.
Demographics is hardly the only factor. Higher mortgage rates pose a strong headwind, and a tough winter slowed construction, as Bloomberg economist Joseph Brusuelas writes in today’s Bloomberg Economic Brief (by subscription). Brusuelas notes that for housing to get much stronger, “the economy would have to generate improvement in the quality of employment—especially among the 25- to 34-year-old cohort responsible for the bulk of first-time buyer sales.”
The Washington Post recently highlighted the vital role played by young adults in housing. Not only are there fewer people in the age group; the cohort just isn’t that into houses. Demographer Chris Porter of John Burns Real Estate Consulting told the newspaper that Americans who were 30 years old to 34 years old in 2012 “had the lowest homeownership rate of any similarly aged group in recent decades,” at 48 percent. Baby boomers had a 57 percent ownership rate when they were that age.