Why are real estate prices so expensive? Blame baby boomers, says Barclays

Despite the astronomical rise in mortgage rates, U.S. housing prices are rising across the country, putting homeownership out of reach for millions of Americans.

The rise in interest rates – which topped 7% last year for the first time in two decades – has created a “golden handcuff” effect in the housing market, with sellers securing a record low mortgage rate of 3% over the course of the year. or less secured At the start of the pandemic, we were hesitant to sell and chose a more expensive option, leaving eager potential buyers with few options.

The number of available homes on the market at the end of August was down more than 9% compared to the same period last year and an impressive 45% compared to typical levels before the pandemic began in early 2020, a study found Current report from Realtor.com.

According to Barclays economists, there is another factor that is driving up property prices. baby boomers. In a recent analyst note titled “Blame the Boomers,” strategists argued that America’s aging is leading to more household formation.

“The U.S. housing sector is back on the rise, even as mortgage rates are at their highest levels in several decades,” wrote strategists led by Jonathan Millar. “Although much has been attributed to the shortage of existing properties and mortgage lock-in effects, we believe the strong demand is a symptom of the aging population.”

It may seem “paradoxical” because an aging population tends to require less housing. However, this is not the case with baby boomers. They are currently between 57 and 75 years old. Baby boomers are reaching retirement age and starting new households, whether due to divorce or death, but they are not releasing existing supplies.

Household formation increases demand for both home ownership and rental properties. Education refers to the change in the number of households – i.e. the number of people living under one roof – from one year to the next. This often happens when young people move out of their parents’ home or when a couple gets divorced.

“While it is probably true that older people tend to prefer smaller housing units, it is not true that an older population requires fewer housing units,” Millar said.

Although there has been a “remarkable” increase in demand from the younger population, the analysis said almost all of the additional demand was due to the aging population and a significant increase in households.

Barclays expects the imbalance between excessive demand among baby boomers and limited supply to continue for several years.

“The data suggests that demographics are likely to support demand for the foreseeable future, equating to annual budget formation of around 1.3 million units by the end of the decade,” Barclays analysts said.

“Meanwhile, the cumulative shortage of new housing units remains significant, putting upward pressure on property prices and rents, thereby encouraging additional construction activity.”