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Housing markets and demographics

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  • John Krainer

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.

Suggested Citation

  • John Krainer, 2005. "Housing markets and demographics," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug26.
  • Handle: RePEc:fip:fedfel:y:2005:i:aug26:n:2005-21
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    References listed on IDEAS

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    1. Edward L. Glaeser & Joseph Gyourko & Raven E. Saks, 2005. "Why Have Housing Prices Gone Up?," American Economic Review, American Economic Association, vol. 95(2), pages 329-333, May.
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    Cited by:

    1. Takáts, Előd, 2012. "Aging and house prices," Journal of Housing Economics, Elsevier, vol. 21(2), pages 131-141.
    2. Alessandro Piergallini, 2020. "Demographic change and real house prices: a general equilibrium perspective," Journal of Economics, Springer, vol. 130(1), pages 85-102, June.
    3. Costello, Greg & Fraser, Patricia & Groenewold, Nicolaas, 2011. "House prices, non-fundamental components and interstate spillovers: The Australian experience," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 653-669, March.
    4. Jieun Lee & Hosung Jung, 2023. "Demographic Shifts, Macroprudential Policies, and House Prices," International Journal of Central Banking, International Journal of Central Banking, vol. 19(5), pages 1-47, December.
    5. Frédérick Demers, 2005. "Modelling and Forecasting Housing Investment: The Case of Canada," Staff Working Papers 05-41, Bank of Canada.

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    Keywords

    Housing - Prices; Demography;

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