Study forecasts home sales, demand for new millennium

The forecast for housing in the new millennium is for growing home sales and a steady level of housing demand, according to "Housing in the New Millennium," a study by the National Association of Realtors.

However, the way in which the market grows will vary according to the changing needs of several generations, according to a release from the association.

NAR's long-range forecast projects existing-home sales will average 4.6 million units per year between 2000 and 2010, then rise to about 4.9 million sales per year from 2010 to 2020.

The median existing-home price is expected to range from $210,400 to $252,800 between 2010 and 2020, while the median new-home price should range from $261,000 to $302,700 during the same decade, the release stated.

The changing needs of three generations the baby boom, the baby bust (also known as generation X) and the millennium generation will have significant impacts on the housing market between 2000 and 2020.

Although the baby bust (born between 1965 and 1979) and millennium (born after 1979) generations are smaller than the baby boom (born between 1946 and 1964), a rise in immigrant and minority home buyers will offset a shrinking number of more traditional households, according to NAR.

"Each generation will shift in its housing needs, keeping the housing market strong during the first part of the next millennium," said Terrence M. McDermott, executive vice president of the association, in the release.

The fastest growing demographic group will be 45- to 65-year-olds, which means there will be strong demand for upscale housing and second homes.

The number of single-person households is expected to rise, translating into a need for upscale apartments, condominiums and townhomes.

The millennium generation is expected to reach its prime first-time home buying age in seven to 10 years. The traditional market for first-time home buyers, 25- to 34-year-olds, will be smaller. However, growing demand from immigrants, minorities and other "non-traditional" households will preserve activity in the starter-home market, the association stated.

The impact of immigrants will be greater near points of entry, mostly in the Northeast, the West Coast, Texas and Florida. Immigrants often desire to stay near ethnic enclaves, which will fuel the revived strength in many urban markets and help mitigate sprawl into outlying areas.

Racial and ethnic diversity will continue to increase, the NAR reported.

By 2020, the white population will shrink from 76 percent of the total to approximately 64 percent. Hispanics will surpass blacks as the leading minority and will account for more than 16 percent of the population. Blacks will be just under 13 percent, while Asian and Pacific Islanders will be just under 4 percent of the total population.

At the same time, the senior market will be growing. Three-fourths of seniors prefer to own their residences, but they will want properties that are easier to maintain and located in proximity to recreation and services. There will be exceptional demand for well-appointed and easy to maintain single-story, single-family homes located within the same market area, the release stated.

In the next century, the home buying process will become easier and faster, spurred by deregulation and new technologies.

"The millennium generation is techno-savvy, and will do much of their home searching on the Internet. Between 1995 and 1997, use of the Web in searching for a home grew ninefold, and we expect it to really mushroom by the time this generation gets into the housing market," McDermott said.

"Millennium buyers will be more knowledgeable, and it will be common for them to show a list of prospective homes to a real estate agent, permitting agents and brokers to focus on professional services rather than educating buyers on the basics," he added.

During the first 20 years of the next century, the U.S. population is projected to grow by an average of 2.4 million per year. This translates into 1.1 million to 1.2 million new households per year, meaning a continuing need for additional housing.

"However, there will not be a smooth trend in the overall market. We expect housing starts to decline somewhat during a five-year period at the beginning of the new millennium, then increase to serve the needs of emerging and niche markets for both ends of the generational spectrum," McDermott said.

"Keep in mind these projections speak to the underlying need for housing and the fundamental impact of demographic changes. Inevitably, there will be short-term downturns resulting from economic cycles and outside events, but this study demonstrates the continuous stability of the housing market well into the 21st century," McDermott added.

At present, 45 percent of U.S. household wealth is in home equity. The stability of housing as an investment is expected to continue, especially in comparison to the stock market. Between 1976 and 1997, the variability in stock returns was 13 times the variance in home price appreciation, the NAR stated.

Since NAR began tracking home prices in 1968, prices have increased each year; on average, appreciation has been at the rate of inflation plus one to two percentage points.

With the aging of the population and the accumulation of home equity, reverse annuity mortgage (RAMs) are expected to grow in popularity. In general, these mortgages allow owners who are "house rich but cash poor" an opportunity to tap into a home's wealth while still living in the house.

"Given the fact home equity is the single largest asset most people have, it only make sense that instruments that allow people to tap into that equity will grow in popularity," McDermott said.

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