February 22, 2024
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Guest commentary: This is what happens to home prices and rents when people dying outpaces people buying

IN THIS ARTICLE

By John Grace

Everyone knows that interest rates, location, and inventory drive the conventional wisdom on the housing market. 

Let’s challenge what we think we know with George Patton’s sage observation, “If everybody is thinking alike, then somebody isn’t thinking.”

Dent Research makes the future very clear. 

“This will be a worldwide real estate crash after a global bubble. There will be nowhere to hide. China’s real estate will go down as much as 70%; ours, on average, will go down as much as 50%. People aren’t going to want to buy anywhere for a while, and that’s why real estate will be much slower to bounce than stocks. Stocks took 17 months to reach the bottom in the 2008 crisis. Real estate took six years,” the report said.

Only time will tell if this forecast comes true. But those who keep their powder dry may catch the next wave.

We can discover precisely the ages that Americans, on average, buy and sell homes, thanks to Dent Research and the U.S. Census Bureau. It’s as simple as 1-2-3.

1. Age 31: First home purchase.

2. Age 41: Largest home in life

3. Age 78: Home sold

While some Americans blame the Baby Boomers for current home prices, it’s not their fault. Thanks to the pent-up demand of enlisted members returning home from war, 76 million Americans were born between 1946 and 1964. 

That makes for 24% of the U.S. population. 

There was unprecedented demand for everything available for sale, from diapers, Schwinn bicycles, lots of board games like ‘Monopoly,’ Mustang cars, and homes. 

Just as the high double-digit 1980s mortgage interest rates were no obstacle to home ownership, the lack of inventory cry fails to tell the whole story. Indeed, the chronicle behind the headlines reveals an entirely different story. 

My job is to help you see both sides of the equation. Everybody must get off the ride when the music stops on the carousel. You can leave with the brass ring.

1. According to the CDC, U.S. life expectancy has declined to 76.4 years, the shortest in nearly two decades. Boomers begin turning 77 this year. Look at the average life expectancy before you look at your family’s experiences, who may have more resources and better health care than the majority.

2. The average age Americans sell their home is 78, per the U.S. Census Bureau. 24% of the population will reach 78 in less than three months.

3. The Japanese story may forecast our future. Japan’s real estate bubble burst by 70% in 1990 but never bounced back after thirty-three years and counting. Today, there are 11 million vacant homes or 18% of the 63 million residences in Japan. The Nomura Research Institute predicts vacancies “could exceed 30% of all houses in Japan by 2033.”

4. Japan is not alone. California, the most populous state in the nation, has about 1.2 million empty apartment units and single-family homes, according to the California Association of Realtors. More than 16 million homes are sitting vacant across the U.S., according to LendingTree.

5. As China goes, so does the world. We led the world with the Great Depression; now it’s no surprise that China’s exports went negative in May 2023; it is the world’s second-largest economy’s turn to conduct the world’s downturn. Even China’s 1.4 billion population can only fill some of its vacant properties, where experts believe the number of empty homes and apartments ranges between 65 million to 80 million units, per Fortune. 

6. Since 2000, average home prices have tripled, if not quadrupled. Average household income, however, has only risen 1.6 times, per Dent Research. This situation is not sustainable.

Let me encourage you to avoid “recency bias.” Recency bias is the tendency to emphasize experiences that are freshest in your memory —even if they are not the most relevant or reliable. 

Let go of what happened in your lifetime or your parents’ lifetime. 

Instead of looking in the small rear-view mirror, please turn on your GPS and look out over the large windshield in front of you to be better prepared for what may be the crash of your lifetime. 

The developing home vacancy story happening right before your eyes suggests that when 24% of the population goes to heaven, and the inventory remains flat, prices and rents may go down like the Titanic. 

John Grace is a financial planner and president of Investor’s Advantage in Thousand Oaks.