Monday, January 02, 2006

Housing Bubble Baloney!

The easy way to dispel the housing bubble baloney is to look at drivers license data.

Here are the millions of drivers in 5 year age brackets as of 2003.

Under 19 . 09.2mm
20-24 ... 16.7mm
25-29 .... 17.1mm
30-34 ..... 18.9mm
35-39 ...... 19.6mm
40-44 ....... 21.2mm
45-49 ...... 20.3mm
50-54 ..... 17.9mm
55-59 .... 14.9mm
60-64 ... 11.3mm
65-69 .. 08.7mm
70-74 . 07.3mm
75-79 06.1mm
80-84 03.9mm
85-over 02.4mm

A total of 196 million licensed drivers who own 136 million cars.

In the above data do you see what one observer has called a "pig being swallowed by a python"?

The data is 2 years old; the pig or big bubble is moving into the 45 to 54 age range. The leading edge of the “boomers” will enjoy their 60th birthday this year. Guess what? Consumers make the most money of their lives when they are in the 45 to 54 age range! Guess what else? Consumers typically have more disposable income in this age range!

At, there is a calculator for estimating the cost of raising and educating a child. Assuming the child lives in the south, has parents of moderate to upper means and attends public schools, the cost estimate is $475,000. Parents of two children will typically spend more than a million dollars on their children and parents of three children will typically spend more than 1.3 million dollars. It cost more to “own” two or three children than it cost to own a beautiful ocean front beach house.

Despite the anecdotal evidence, children now live “on their own” at a young age. In 1985, sixty percent of all males 18-24 years of age lived with their parents. In 2003, this number was down to 56%. In 1996, 16 percent of all males 25-34 years of age lived with their parents. In 2003 this number was down to 13%. Females move out even earlier but fewer and fewer live with their parents past the age of 18.

Back to the driver’s license data; note that in five years, the cohort of prime first home buying age will shrink. Right now, the prime average age has been reached by millions who will buy a first home, move to the “big home” or buy a second home. Over the next five years, 20 million people will reach the prime age for buying a second home!

Home mortgage rates have declined over the last nine weeks and the yield curve is now predicting lower interest rates in 2006. Despite reports of 5 months supply of homes on the market, the housing market is very strong. Recent data show that house prices are appreciating rapidly, not as rapidly as the past few years but still at double digit rates.

Look at the driver’s license data another way; in 2005, the Bureau of the Census estimates that of all the people 35 and under, 42.8% own their home, while of those who are 55 to 64 years of age, 81.3% own their own home. In the next few years there will be several more million Americans in this higher home ownership bracket.

I do not have the data handy but another interesting trend is the length of time folks are living in their homes. In the old days, Grandma moved in with the family (or the other way around). My Mom is an amazing woman who, like other single women in their 80's, wants to live in her own home. Her children, grand children and great grand children come to visit but Mom does not want to move in with any of them nor does she want to move to an "independent living" facility. She recently added a large bonus room and sun porch on to her home, demonstrating that she plans to be there a while. Her health is good and her ancestors lived long lives. God willing, she may live in her home another 25 years or more.

The bottom line is that there more people than ever before at prime home ownership ages. This reality happens to be true in most developed nations including all of Western Europe. London home prices have been leading all the way up. They were hot as a pistol a few years ago; they cooled down for a couple of years and are now soaring again.

Low interest rates are making home ownership very affordable; especially for all those whose children have flown the coop. Another trend is that many of those who already own a home are helping their children buy. I have heard it said that, the next few years, America will see the largest amount of intergenerational transfers of funds ever.

Harry Dent, the author of "The Next Great Bubble Boom" offers another perspective. He suggests that we are living through "bubble times". The stock market bubble that popped is about to be followed by another bubble; the key being to buy long before the pop. He sees bubbles all over the place. There is a gold bubble, a copper bubble, an oil bubble, a bond bubble and a real estate bubble. The difference in Harry and the Chicken’s little who are squawking loud and long is that he is looking to ride these bubbles for all they are worth.

I still like Ken Fisher's take. He is willing to get on this bucking bronco for a wild and fantastic ride.

P.S. In full disclosure, my wife and I are in the midst of retiring from our resort property rental business. We have 11 ocean front and ocean view condos on the market for sale at Myrtle Beach, SC. We plan to keep an ownership interest in beach property for the enjoyment of our family.