Harry Dent predicted our current situation when he showed that a slowdown in the birthrate 25-35 years ago would lead to fewer people entering the housing market to buy homes. It is those new buyers who fuel the growth of the rest of the residential real estate market.
If you look at the following graphic and imagine the following scenarios, you can see how the cycle speeds up or slows down. (We'll scale down the numbers to make them conceivable)
Imagine a "normal" or traditional sum of about 10,000 first time buyers entering the market yearly. (Remember, we scaled this down). I don't remember the exact age, but somewhere between 25-35 years old are the demographic.
Those buyers buy pre-existing starter homes (Historically. We'll introduce new construction down the line).
The Sellers of those homes buy another, slightly better (larger, more expensive, better neighborhood/schools) home from someone else and this happens a number of times until somebody who is selling downsizes into a condo or a smaller home (The Empty Nesters).
OK, now let's introduce some variables:
- What happens to supply and demand if the number of First Time Buyers increases to 30,000?
- What happens to prices?
- What happens to supply and demand if getting a loan gets tougher and the supply of buyers shrinks?
- What happens to prices?
- What if Builders overbuild based on 30,000 1st time buyers entering the market, and then only 8,000 show up the following year?
Why all of a sudden were there so many?
- Lenders gave loans to borrowers who traditionally were not ready to buy. Buyers who were younger, with poorer credit, little or no down payment, less time on job, etc. (The pool of first time buyers increased, contributing to an artificial buying "boom".)
- 1st time buyers bought homes like (or better than) those that took mom and dad 30+ years of working to buy. (Another factor of the money coming easy, or appearing to come easy)
- Builders overbuilt these "fine" homes that historically would be more fit for move-up buyers, but hade been getting gobbled up by first time buyers.
- The number of 1st time buyers shrinks because they can no longer get a home without down payment, good credit etc. This on top of the fact that there were already going to be fewer first time buyers in the pool anyway. (Remember, 10 year olds aren't buying homes.)
This is where we are today.
Mr. Dent isn't always right. But basing buying trends on age demographics made sense to me at the time, and still makes sense to me today.
If the topic sounds interesting, even though it is out of date, the book provides for some interesting things to think about. Perhaps it will give you some ideas as to how you might win out in today's market?
If you are moving to the Salt Lake City area, buying a home still makes sense in most cases.
If you buy a home in today's market, make sure you get an Agent on YOUR side of the transaction!
If you have excellent credit and will be buying a $250,000-$750,000 home in the next 30-60 days and would like an agent who will work exclusively for you, call us at (801) 969-8989 or contact us via the link on this page.
©2008 Homebuyer Representation, Inc. "The Real Estate Agents on the Buyer's Side" TM Exclusive Buyers Agents (EBA) - All Rights Reserved
Exclusive Buyer Brokerages do not list homes and never represent Sellers. Their agents represent Buyers ONLY on the Buyer's side of the transaction. They work to get BUYERS the Best Price and Terms when they Buy...
©2008 Homebuyer Representation, Inc. - Salt Lake City, UT
Exclusive Buyers Agents (EBA) - All Rights Reserved