Demographics, Employment, and Housing Prices

In reaction to last week’s employment report and the handwringing about labor force participation that followed, Bill McBride has a post on labor force participation that is worthy of your attention. Here’s the meat of the post:

The employment-population ratio really increased in the ’70s and ’80s for two reasons: 1) favorable demographics as the baby boom generation moved into their prime working years, and 2) a rising participation rate for women. But that trend was about to change even if there hadn’t been a severe recession.

This ties in well with a point that I have made repeatedly here: a lot of the economic growth we’ve seen over the last 60 years has been dependent on demographics. The Baby Boomers started to become “prime age workers&148; in 1971; they began to cease being “prime age workers” in 1999 and will continue to do so for the next several years; they began to retire in numbers in 2011.

That dovetails neatly, too, with the post-war history of real housing prices other than during the bubble. Since WWII real housing prices have increased at a fairly constant and modest rate of 1.5%. To return to that trend at this point requires nearly a 50% decline in prices.

Prior to the war, even prior to the Great Depression, housing prices had been trending down. There was a bump-up contemporaneous with the arrival of the Baby Boomers after the war, another bump-up when the Baby Boomers started to become “prime age workers”. As Baby Boomers age it shouldn’t be surprising if housing prices decline not merely to the post-war trend but to below the post-war trend.

5 comments… add one
  • Susan Glenn Link

    My, aren’t we cheerful.

  • Sam Link

    This line of argument works for stock prices too.

    Handing out Green Cards with college diplomas obtained by foreign students would probably help housing, social security, asset prices…

  • My, aren’t we cheerful.

    I calls ’em like I sees ’em. I think the present economic situation is pretty grim without much likelihood of taking the steps necessary.

    Handing out Green Cards with college diplomas obtained by foreign students would probably help housing, social security, asset prices…

    I’m not opposed to that. I haven’t written much about immigration lately but I think that our current policy is, essentially, nuts.

    Largely due to the changes in Latin American and Caribbean demographics the immigration debate is quite likely to change. Maybe we can rationalize it then.

  • steve Link

    “I think the present economic situation is pretty grim without much likelihood of taking the steps necessary.”

    Letting housing prices drop 50% ( more foreclosures, less worker mobility) and rebuilding balance sheets (continued weakness in consumer spending) are grim enough.

    Steve

  • Drew Link

    Dave –

    I think the analysis is incomplete, although I’ve not thought it through completely myself.

    If population rises for demographic reasons then certain sectors will experience demand: food, clothing and shelter for example. But does it follow that all those boomers wishing to enter the employed workforce will find jobs? Contrarily, with baby boom retirement, will not younger folks have better access to job opportunities?

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