SAN FRANCISCO—Wouldn't it be convenient if someone had clear, intelligent answers to most of your CRE-related questions? Problem solved. Nina J. Gruen, a.k.a. Ms. Real Estate, a.k.a. the principal sociologist overseeing market research and analysis at Gruen Gruen + Associates, is here to answer readers' questions.

Have a question for Ms. Real Estate? Ask anonymously by clicking here.

Dear Ms. Real Estate,

I am a planning consultant. The majority of our firm's business is on the West Coast, followed by Texas and the Phoenix region. My colleagues are concerned that the coming decades are likely to see a decrease in demand for single family detached housing, both new and existing. Do you concur, and if so, why?

—A Stumbling Single-Family Soothsayer.

Dear Single-Family Soothsayer,

As you know, all housing markets are local, so single family housing will still increase in places with significant population growth, while the reverse is true of regions with stable or declining populations. But yes, unfortunately, I do concur that in most regions, the demand for new single family housing, as well as existing homes, will either stabilize or experience a decrease in the coming decade. This generalization is based on two basic factors: demographics and the stagnation of middle class incomes.

Historically, people in their 30s and 40s are the primary buyers of both first and trade-up homes. But currently and in the coming decade, we are talking about the X-ers, or the appropriately named "baby bust" generation. The small size of this demographic and the stagnation of wages affecting many of the middle class X-ers does not bode well for the purchase of either new or existing single family homes. Between 2003 and 2013, according to a study conducted for the Harvard Joint Center for Housing Studies, among the 35 to 39 year age group the number of homeowner households dropped 23%, and among 40 to 44-year-olds the decline was 19% during this same time period.

Many Boomers are remaining in their primary homes. While a proportion of the higher income Boomers also have pied a terre condos in high amenity downtowns or a second home in upscale semi-rural locations, most do not expect to move from their primary residences until they are much older. Further, even among those Boomers who will eventually put their single family homes on the market, a growing percentage of this demographic is postponing retirement well past the traditional age of 65. As a result, the turnover of houses by even those Boomers who will eventually become sellers is going to be stretched out longer than what has historically been the case. Currently, the oldest Boomers are in their late sixties.

In contrast to previous generations, many professional class Millennials do not envision working for the same employer far into the future and continue to be on the lookout for new opportunities. Therefore, unlike their parents' generation, many of the professional Millennials prefer to rent for multiple reasons, one of which is that renting provides more mobility than ownership. Millennials without the skills to work with or benefit from the tools of the digital revolution, many of whom are immigrants or children of immigrants, won't have the income required to purchase a single family house. However, this group does provide a market for those foreclosed homes that have been purchased by real estate entrepreneurs and converted into rentals.

The news for new and existing single family home sales is not good, unless we are able to solve the middle class wage stagnation sooner than later.

Instant Insights /

What's In the Housing Tea Leaves

Related Stories

Recommended For You