- High mortgage rates and a shortage of housing supply are only part of the pricing story, according to Barclays.
- Strong demand among older Americans is keeping prices high, with analysts saying “blame it on the boomers”.
- This is because older age groups tend to motivate more families, adding pressure to the market.
There is a housing market paradox that explains what drives demand and house prices up, according to Barclays.
Despite a brief drop in home prices late last year, valuations have rebounded since the first quarter. As prices continue to rise, the housing market is in the grip of an affordability crisis, and middle-income buyers are increasingly denied access.
The Standard Interpretations place the blame on higher mortgage rates, which Discourage homeowners with lower prices than selling. This has kept inventory limited in an already-hungry market, forcing buyers to bid higher on the few homes available.
But Barclays analysts said that alone did not explain the rise in house prices. According to their memo, “Blame it on the Boomers,” America’s aging is spurring more family formation.
“This may seem contradictory to some, as many link the demand for housing units to the rates of population increase,” the analysts said, adding: “Isn’t it true that the elderly need less housing? While the elderly are more likely to tend to have more housing.” less”. Go ahead smallest Housing units, it is not true that the elderly need them less Housing units.”
Barclays explained that as the head of the family grows older, the size of the family becomes smaller in terms of number of people, as children move out and couples separate due to divorce or death. This is how more families are created as the population skews older.
Barclays writes that as more Americans get older, so does the demand for housing, driving up home prices.
“Despite notable increases in demand from the 35-44 group, almost all of the additional demand is due to an aging population, with significant increases in households in the 65-74 and 75+ groups,” the analysts said. “Overall, our estimates indicate that the underlying pace of new household formation across all age groups is approximately 1.3 million units.”
With less than half of baby boomers entering retirement in 2020, this trend is not abating anytime soon. Barclays expects the imbalance between excessive demand and undersupply to extend over the medium term, with construction labor scarcity and high borrowing rates adding to the pressures.
However, the additional demand has helped spur further construction, which will accelerate further once the Fed starts cutting interest rates.
However, additional housing construction will only slightly mitigate the inventory shortage – prices are unlikely to catch up with inflation until the fourth quarter of 2024.
“With the overall housing shortage likely to continue, we believe risks to our outlook for both house prices and rents are to the upside, particularly as the Fed enters a tapering cycle in late 2024,” Barclays said.
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