MAKE WAY FOR THE ECHO BABY BOOMERS

ROBERT J. SHEEHAN 

The echo baby boomers - the children of the post World War II baby boomers - are beginning to enter the housing market. Their numbers are large and will impact the housing market for the next three or four decades.

The echo baby boom started in 1978 and continued through the first half of this decade. There are not as many echo boomers as there were baby boomers, but their numbers are impressive - 71.9 million versus 75.9 million.

These numbers translate into an average of 3.78 million live births per year from 1977 to 1995 and 3.99 million from 1946 to 1964. Births during the baby bust period from 1965 to 1977 averaged 3.38 million persons per year. Echo baby boomers, therefore, entering the housing market over the next two decades, will come from a markedly larger base than experienced over a major part of the 1980s and early part of this decade.

The leading edge of the echo boomers is visible in the table on page 53, which compares households by age groupings for 1994 and 1997. It shows an increase in the youngest households, those aged 15 to 19 years. The youngest aged households declined continually from the mid-1980s. Over the 1994 to 1997 period their numbers rose by a total of 124,000, a 23 percent rise in this not surprisingly small group.

Most echo boomers will enter the housing market as renters. Nearly 80 percent of all householders under age 20 were renters last year. It is more likely that a young adult will become a householder between the ages of 20 and 24 years. Eighty-two percent of householders between 20 and 24 years last year were renters.

The pattern of renter shares changes as households age. The prime first-time homebuyer age is the 25 to 34 age group, and the share of renters begins to fall markedly. It continues to fall until the 75 to 84 years of age group is reached. The low renter's share last year was 18 percent in the 65 to 74 years of age group.

Baby boomers continue to move into the age groups with the lower renter shares. Growth is the strongest among households aged 40 to 54 years of age. An increase of more than 3 million households occurred in this age group over the 1994 to 1997 period. The number of renters in this age grouping did rise by nearly 800,000, but this represents only a 25 percent share of the total increase. Home ownership among these middle-aged households rose by 2.3 million. Therefore, it is no surprise that the home ownership rate has increased markedly over the past two years.

The increase in middle-aged renters does support demand for upscale units, currently the most popular niche for apartment builders. Household income rises with age until the early 50s. Many middle-aged renters have a larger pie and can afford a larger slice for housing.

A strong economy, low mortgage interest rates, and relatively stable housing prices are also encouraging increased home ownership. Their impact on the housing market can be observed in the change in the shares of renters in individual age groups. Renter shares declined in almost all of the age groups over the 1994 to 1997 period. It reverses a trend of the 1980s. During the 1980s, housing prices rose sharply and interest rates were significantly higher, thus home ownership affordability weakened. Renter shares of households in turn increased in all groupings up to 65 years of age.

One could expect further declines in the renter share of total households over the next several years at least as baby boomers continue to age. They are moving toward the age groupings with the lowest shares of renters. It will be several years before the numbers of echo baby boomers will be in the housing market as renters in sufficient numbers to offset the impact of the aging baby boomers.

Another limiting factor in the decline in renter shares could be on the horizon. Housing prices in more markets are showing signs of rising sharply. Housing prices have risen only moderately in the 1990s as household incomes increased modestly. Many households are now enjoying greater increases in their incomes in inflation adjusted terms. This give them the ability to compete in the for-sale housing market. Prices of ownership housing may be bid up and affordability issues could arise again. The rental housing market will benefit if ownership becomes less affordable to an increasing number of households.

One final note: the entry of the echo baby boomers into the rental housing market will begin the shift to increasing shares of rental households with more moderate incomes. Apartment developers, builders, and management firms should look at the potential impact of this demographic change on demand in the markets in which they operate. It is a lack of timely recognition and business planning in regard to demographic and economic change that creates havoc with the bottom line in the apartment business.

Sheehan is a vice president with Regis J. Sheehan & Associates, McLean, Virginia, and serves as NAA's economist.