Demographics: The Telling Real Estate Indicator You Should Analyze Before Investing

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A couple weeks ago, I was fortunate enough to attend a mastermind group that I often frequent in Dallas, TX, and I had the pleasure of hearing Jerry Tuma, author of From Boom to Bust, and Beyond, speak. Jerry is an investment advisor who frequently speaks on the economy and investment markets.

I’ve recently read his book and found it quite validating, as I believe certain trends and economic indicators can shed a significant amount of light and can help one hone their investment strategies when it comes to real estate investing.

Related: Is Now the Time to Buy? How to Determine if Your Market is Worth Buying In

Analyzing Market Data

Normally, when it comes to collecting or analyzing a lot of economic data, the task can be quite overwhelming. It’s just like trying to predict who will be the next president or what political party will impact the future environment.

But as Jerry states, there are some things we definitely know, such as the number of people who were born in a particular year.

So let’s start there…

figure1

Source: U.S. Census Bureau; Figure 1A

Jerry also discusses data on peak spending habits from Harry S. Dent, which shows that people’s biggest spending years are in their mid to upper 40s on average. For example, the peak age for spending on housing is age 44.

So, by just adding 44 years to the end of the baby boomers (approximately 1961) you can quickly see that the largest group of homebuyers in US history was leaving the real estate market around 2005. As Jerry Tuma quickly points out, many people want to blame a lot of things on the economic markets in the past meltdown, but the number one driver appears to be the decrease in the number of homebuyers.

Did the real estate market place create an oversupply of inventory? Absolutely.

Many people participated in the real estate market frenzy prior to the bubble collapsing, but it is interesting to know the role demographics may have played as well.

After the baby boomers, we had a dramatic decline in births in the US. Maybe it was due to the sexual revolution, feminism, birth control and abortions, and higher divorce rates, but we saw a decline in births for approximately the next 10 years, and when you add 44 years to this, it brings you to the period we’re in right now — a decline in the real estate market. To be quite honest, I think this is more than sheer coincidence.

So, based on what we know, the next time period for an increase in births is from about 1978 to 2003. This may very well predict the next boom real estate cycle. When you add 44 years to those two time periods it looks like between 2022 all the way to 2047 could theoretically be the next upward real estate market trend.

Could Things Possibly Change?

Sure, things like lifestyle and buying habits could change. Maybe due to large student loan debts, people will wait longer to buy houses. When I was younger, people were moving out of urban areas to the suburbs. Today we are seeing many people moving back into the cities. Maybe the household makeup will change too.

Real Estate is Localized

Let’s not forget that real estate markets are very localized, and jobs have a lot to do with the real estate environment as well. Being from Pennsylvania we’ve seen jobs and people leaving the state. According to the U.S. Census Bureau: State and County QuickFacts, Pennsylvania’s population growth from April 2010 – July 2013 was only an increase of 0.6%, compared to a national average of 2.4%. I travel a lot, and I see states like Texas, for example, where real estate and jobs seem to be booming compared to Pennsylvania.

Related: How to Analyze the Real Estate Market to Avoid Major Investing Mistakes

What I’ve been saying is know the data in your market.

Are you in an area that’s increasing or decreasing in population and jobs?

Is the market going to be geared towards renters or buyers?

I truly believe the more information we have, the better decisions we can ultimately make.

For me, I never really looked at demographics. Now, some of my portfolio has flat rentals, and it’s difficult to sell property, and this is largely due to population and job decrease in the area.

It’s a lesson learned. In the future, I’ll be more strategic when I’m purchasing a rental. I’ll try to buy in an area that not only has a good school district (which I’ve always looked at), but also has an increasing population and job growth.

So, what role will demographics play in your real estate investing decisions?

Leave me a comment below, and let’s discuss!

References:

Colby, Sandra L. and Jennifer M. Ortman. The Baby Boom Cohort in the United States: 2012 to 2060. Current Population Reports, P25-1141. U.S. Census Bureau, Washington, DC. 2014.

Tuma, Jerry. From Boom To Bust And Beyond. Florida: Excel Books, 2009.

About Author

Dave Van Horn

Dave Van Horn is President at PPR The Note Co. - an operating entity that manages several funds that buy/sell/hold residential mortgages, both performing and delinquent. Dave has been in the Real Estate business for 25 years, starting out as a Realtor and contractor and moving onto everything from fix and flips to Raising Private Money.

27 Comments

  1. karen rittenhouse

    Dave:
    I have followed Harry S. Dent for years and love the insight he provides.

    Other experiences now affecting our trends include the fact that 20-30 somethings just saw the real estate bust and are not convinced that owning a home provides financial benefits like their parents and grandparents believed. This has created a new trend toward rentals. Also, the younger generation is extremely comfortable making frequent and large geographic moves (thank you, internet), so being tied to one location is less desirable than ever before.

    It will be interesting to see how all of this plays out over the years to come, but there is so much more than economy to consider when investing.

    Thanks for your post!

  2. Jessica H.

    good article! Something I need to analyze more for sure! Pennsylvania is a big state, we live right on the NJ border in an area that has really grown from its own economy bt also from NJ “transplants” coming over here due to the high costs of living there. Real estate is definitely a local thing, even from neighborhood to neighborhood in some instances!

    • Dave Van Horn

      Hi Jessica,
      You’re right, real estate is definitely a local thing. Just because we’re in Pennsylvania, doesn’t necessarily mean that the population is declining in every county either. For example, Chester County’s (where I live) population growth is several times over the population growth of Delaware County (where I invest).
      Best,
      Dave

  3. Great and Educational article. I pretty much noticed the same trend you mentioned in your article. I have noticed a lot of people under 35 years are renting in couple cities i visited or perhaps some want to buy when they start family. Location is critical, especially good school district, that way you will always have renters.

    • Dave Van Horn

      Hi Ilhan,
      Thanks for bringing up school districts. In the past, I’ve always looked at this and still do. But, I’m also wondering if it’s less critical now than it used to be, especially since the younger generations are waiting longer to have kids. Also, with people living longer, there are more folks in retirement. Today, I still look at school districts, but I look at other factors too.
      Best,
      Dave

  4. Very insightful article. I definitely follow the demographic/jobs trends and that’s how I ended up in Texas. I noticed how the state offers such a low cost of living (e.g. no state tax) and the Hispanic population and jobs growth. So far, my rentals hasn’t seen a single day of vacancy (knock on the wood).

    • nope, 2022.
      Dave is talking about a overall RE bull market. There will be pockets of bull market bec of demography/migration/jobs before that time but there will be more competition and less CAP or more time consuming to find a good deal etc.

  5. Fitzgerald Hall

    Awesome article Dave! This is the portion of real estate a lot of investors overlook. I’ve been studying market conditions for a while including things like job growth, population growth, characteristics of the people who reside in the city, following new devolpments, etc. But this was the first time I’ve heard it broken down in reference to the age of baby boomers. Thanks for the insight.

  6. >>I travel a lot, and I see states like Texas, for example, where real estate and jobs seem to be booming compared to Pennsylvania.

    With the price of WTI oil down nearly 50% from its high, I would be careful of Texas.
    In fact, a recession in Texas is being predicted by some.

    • Dave Van Horn

      Hi Craig,
      Thank you for your comment.
      You could be right, but keep in mind that even with uncertainties with the oil industry, there’s still a lot of other businesses there. The Texas economy is becoming more and more diverse. It would have an impact but I’m not sure how long-term it would be.
      Best,
      Dave

  7. Jim Williams

    Several years back in 2010, Harry S Dent predicted migration and retirement of baby boomers from California and other high tax and high cost to live states into more moderate and middle american type economies such as Texas, North Carolina, Tennessee, etc. Its happening now! Making these states the next areas of growth in population as they are highly affordable economies. They are consumer friendly with moderate house pricing per square footage and in the past, these states have not had the huge real estate bubbles or crashes either in comparison to Phoenix, Arizona, Las Vegas, NV, most of Florida and most of California.

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