Changing Demography and Your Future

Our current worldwide financial crisis was precipitated by the housing crisis in the United States. No one questions this. The housing crisis in the United States has its roots in very predictable shifting demography. The root causes of this calamity are so simple it is mysterious to me how we did not see this coming. What is equally mystifying to me is why no one including politicians, presidential candidates and evening news anchors has even mentioned our Nation’s uneven demography and its role in this epic disaster.

Roughly eighty million Baby Boomers were born in the United States between 1945 and 1964. The peak of the Boomers was born between 1957 and 1961 and are at the peak of their earnings and consumption right now according to the Bureau of Labor Statistics. They bought and built big houses that were typical of their earlier stage in life. The Silent Generation, born 1925 to 1944, that preceded the Boomers was a small generation of about fifty million owing to reduced fertility during the Great Depression and WWII and virtually zero immigration during that time period. The Boomers bought the Silents’ homes as the Silents retired but the demand outstripped the supply so Boomers built new homes with a vengeance. Now the Boomers are reaching retirement age at the rate of one every eight seconds and it is time for them to sell their big homes and move on. The problem is the younger generation right behind them, Generation X born 1965 to 1984, has critical mass of about seventy million owing to reduced fertility during this time period attributed in large part to Row Vs Wade. In very simple terms this means that for every eight Boomer houses for sale there are only seven Generation X buyers. With the help of relaxed federal lending/mortgage standards the market found marginally qualified buyers to make up the difference in the generations using subprime loans. Subprime loans are loans made to under qualified borrowers at high rates of interest because they are risky. Because a large part of this subprime market demand was not qualified it simply fell apart when the people who shouldn’t have gotten the loans very predictably didn’t pay them. There are some additional ironies here. The high interest subprime loans became the darling of Wall Street who sold, repackaged and resold these high interest high risk loans over and over to investors worldwide who only cared that they were high interest. What happened here? Greed overcame us and we stopped thinking. It is not good to stop thinking.

Is there a silver lining in this black cloud? Yes. The world is not going to end, not yet anyway. The Baby Boomers are at the very apex of their tax paying ability so it appears that the United States will have enough money and credit to correct this fiasco. Also, Generation, Y now ninety million strong and under twenty three years, old appears to be posed to enter the housing market early because of a series of societal, economic and demographic factors. One more thing- all those Latino immigrants that flooded into the United States to take the jobs that Generation X did not have the critical mass to fill are advancing in their careers and need to buy houses, but not with subprime loans.

We are a resilient nation. Relax. It is going to be OK.