Will the Boomers Blow Out the Housing Market?

This Thursday the Census Bureau will release more geographically detailed 2010 census data, including homeownership numbers, and that has whetted journalists' appetites for stories about the housing market. One story that NPR raised today, and which has been floating around for awhile, is what will happen to the housing market as the baby boomers age?

The oldest of the baby boomers — the generation of 78 million Americans born between 1946 and 1964 — have already turned 65. As the generation continues to age, some warn that there won't be enough Americans around of working age to buy all their houses.

"Older people are a ticking time bomb for the housing market," says Dowell Myers, a demographer at the University of Southern California. "What we've gone through recently could be nothing compared to what we have five years from now. When the boomers start to sell off their houses, there are going to be too many boomers and not enough buyers."

The real question, of course, is whether or not the boomers will actually start selling their houses. They arrive at old age with the highest life expectancy of any American cohort in history, so the vast majority of boomers are not going to be dying anytime soon. Furthermore, boomers are staying in the labor market a little longer than previous generations, partly forced to do that by the later age (66 instead of 65) at which they qualify for full Social Security benefits. But they may decide to cash out, if they discover that they haven't saved enough for retirement.

Not everyone can agree on which way demographic trends will be tugging the housing market. The U.S. population, on average, is aging. But it's not aging as fast as other countries such as Germany, Italy, Spain and Japan.

The lesson from those countries is that household size starts to shrink as the population ages. If a country goes from an average household size of 2.5 people, say, to 2.1 people, that leads to a considerable demand for new housing, says Paul Hewitt, the former director of the Global Aging Initiative at the Center for Strategic and International Studies.

Smaller average households mean that the same-sized population is going to need more housing units. "I would think that household formation will substantially exceed supply," Hewitt says.

So, this seems like a tough call at the moment. Yes, the demographics are changing, but we don't have any historical trends to easily draw upon here, so we're learning as we go.