I never thought that I could be an optimist on the housing market, but USA Today did the trick. It ran an article telling readers that there will be a massive sell-off of homes over the next three decades as the baby boomers retire and sell their homes. While we are in the midst of a major market meltdown, I would not bet on the decline persisting for three decades. The basic problem with the USA Today analysis is that it doesn't seem to take account of price. It has boomers selling homes in the Northeast and Midwest and moving to the South and West. This is possible when homes in Northeast and Midwest sell for the same or more than homes in the South and West. It becomes much less possible when this pattern reverses. It is already the case that home prices have been severely depressed in many areas of the Midwest, making the prospect of cashing out and moving to the Sunbelt very difficult. If the trend were to follow the pattern suggested in this article, many areas in the Northeast might be in the same situation. Even more importantly, changes in the ownership rates within age groups could swamp the impact of demographics. Withing age group ownership rates had been increasing until the period of income stagnation that began in the mid-seventies. They rose again in the late 90s boom. If we can again have an era of moderate prosperity, in which most of the population shares in the gains from growth, it is likely that within age-group ownership rates will again increase and offset the decline in housing demand attributable to demographics.
--Dean Baker
