Housing markets and demographics

John Krainer

FRBSF Economic Letter, 2005, issue aug26

Abstract: Fifteen years ago, like today, there were concerns that house prices might collapse. One big difference between then and now, however, is the basis for those concerns. Today, people are worried that a house price bubble (if one exists) might burst, while 15 years ago, people were worried about demographic effects, specifically, the inevitable aging of the baby boomers. ; The earlier concern was sparked by a paper by Mankiw and Weil (1989), in which the authors famously predicted that between 1987 and 2007, real house prices could fall by 3% per year. In fact, real house prices grew by an average of 3-1/2% per year from 1987 to 2004. Of course, the Mankiw-Weil prediction may yet come to pass; or it may have already occurred and simply been masked by the surge in demand over the last seven years that is due to other factors. But the relationship between demographics and house prices remains interesting both because housing constitutes such a large component of the typical household's wealth, and because much remains to be understood about the consequences of the baby boomers liquidating their housing and financial assets. In this Economic Letter, I revisit the economics of the housing market and demographics.

Keywords: Housing - Prices; Demography (search for similar items in EconPapers)
Date: 2005
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