Is there another housing bubble on the rise? A report from the Indiana University Kelley School of Business is predicting a brand-new housing bubble is in the making.
In their article “Prepare for a Generational Housing Bubble,” Phil Powell, clinical associate professor of business economics, and Matt Kinghorn, senior demographer at the Indiana Business Research Center, claimed current residential real estate demand is driven in part by population – which could be the proverbial recipe for disaster.
“Plainly put, a generational housing bubble is on the horizon,” the authors said in Kelley Real Estate Outlook, a new research publication from the Indiana Business Research Center and the IU Center for Real Estate Studies. “New housing built now to meet strong demand may sit vacant in a decade.”
Powell and Kinghorn warned, “Demographic variables will become as important as interest rates, income growth and construction costs in determining the return on real estate assets. At present, demographic pressure on housing markets is at its peak. This implies continued strain on supply in the next several years followed by long-run erosion in demand that can only be reversed by high levels of immigration.”
But the authors theorized that supply will eventually outpace demand.
“The current bubble in demand generated by millennials will slowly deflate, as baby boomers downsize their living space and age out of the housing market,” they said. “Falling fertility rates mean post-millennial generations will be smaller.”
The authors added the rate of new household formation is greater than the rate of total population growth – but if the rate of new household formation falls, the quantity of houses put back on the market by seniors will become greater. As an example, they pointed to central Indiana where the population of homeowners ages 55 or higher in 2021 was nearly 50%, up from 36% two decades before. Absent of a sudden spike in population inflow, they said, residential real estate in Indianapolis will see peak in demand within the next decade.
The report is now available online.
Photo courtesy FridgeDoor.com
Typical egghead academics…And using an area that has always been a place people move from, not to. Try that theory using Phoenix, Atlanta, Texas, etc.
This article seems to forget that millions of people are entering the US every year. Something like 3 million this year or more. This is why housing stock is so tight. Do you really think this is going to change soon? The demand for housing is there and will continue to increase for years to come.
The boomers have had an impact on markets all of their lives. This is true of all investments. When they’re no longer contributing to retirement funds, and withdrawing instead, I suspect stocks will be impacted. Real estate is no different. As the boomers downsize or pass on, if there’s not the same number to fill the gap, the prices will drop. (Supply and demand). There are a ton of restaurants and stores now, filled with boomer shoppers/spenders all day every day. What will that look like in 20 years? The truth is that everything will be impacted, as has been the case their entire lives.
I don’t know about this article but I do know something is in the air. People will begin by not buying shacks and paying high-interest rates for the others. A boycott is in the mix; I say by June.
Let’s face it: the real estate market drives the economy. With politics, interest rates, epidemics, and world powers influencing our future, the crystal ball these researchers are using is akin to a dartboard. Supply and demand and interest rates do influence but many other factors are in the mix.
there wll be a bubble if this senile presidential gets his way
Indiana, really? I haven’t seen a mad rush of people moving to Indiana in any Real Estate climate. The market is hot in Phoenix (especially the North Valley, Scottsdale and Cave Creek). I also see a lot of Indiana license plates here in Phoenix. The real estate market is complex and impacted by multiple economic factors. Business friendly states, like Arizona, are attracting domestic and foreign companies, people and money. With high demand and limited supply, home prices in Phoenix are on the rise based on our actual sales numbers. Don’t believe the media.