real estate

What's ahead for the housing market?

Couple looking out towards their house and future
Highlights
  • Echo boomers and baby boomers will determine the direction of home prices.
  • Home sellers may vastly outnumber homebuyers as baby boomers get older.
  • New homes will be smaller and have more energy-efficiency features.

Will your house hold its value as a financial investment and a good place for you to live during the next decade? What's ahead for the housing market?

To answer those questions, homeowners and homebuyers should watch four trends:

  1. Echo boomers' entry into their peak homebuying years.
  2. Baby boomers' entry into their peak home-selling years.
  3. The new demand for smaller homes.
  4. The new demand for more energy-efficient homes.

More demand, but more supply, too

The demand for housing has diminished as unemployment and other financial pressures have forced college graduates to stay with their parents and whole families to move in with their relatives. But longer term, that demand is expected to be "extremely sound," says Steve Melman, director of economic services at the National Association of Home Builders, or NAHB, in Washington, D.C.

Melman expects a resurgence to occur as economic conditions improve and the children of the baby boomers, called the echo boomers, enter their peak homebuying years.

Demand for housing already has returned to some extent and may increase further in 2010. The National Association of Realtors, or NAR, recently reported that pending home sales rose for nine consecutive months through October 2009. NAR Chief Economist Lawrence Yun said in a statement that existing home sales should number 5.5 million to 6 million annually based on population growth, but that sales were "well below the 5 million mark" before the federal homebuyer tax credit was offered.

Yet even an increase in demand may not be enough to match the number of sellers, warns Dowell Myers, a professor of urban planning and demography at the University of Southern California School of Policy, Planning and Development in Los Angeles.

"Before, there was an unlimited supply of buyers because of the baby-boom generation," he says. "But now that unlimited supply of buyers is going to turn into an unlimited supply of sellers."

Myers says sellers eventually will outnumber buyers, unless a greater effort is made to "cultivate" them.

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"There is a shortage of young people all over the country relative to the number of seniors in the future, so they'll all need to step up to meet the supply of homes for sale," says Myers.

The implications for current homeowners could be dire if Myers' read is correct as a supply-and-demand imbalance of such magnitude could cause home prices to decline. The solution? Myers recommends a greater investment in education so more young people will be able to afford to own a home in the future.

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