Even in the paradise we call Hawaii, a recession, which is creating consumer behavioral changes, is colliding with shifts in the demographic distributions of the population. These forces will affect the real estate market both at home and in the rest of the country, and indeed, worldwide, in unforeseen and extraordinary ways. Americans who have dealt with the spectre or reality of job loss, home loss, and declining real estate values are justifiably skeptical about the benefits of homeownership. The financial impacts of the housing crisis will take years to disappear from the country's real estate markets. In addition, Americans have to consider options unrealized in the last generation.
As reported by RISMedia.com, in an article by Rent.com, "The Joint Center for Housing Studies of Harvard University reports that real median household incomes across all age groups under 55 have not increased since 2000. It’s been posited that this will be the first decade in 40 years where real median household incomes will end lower than where they started. This has the biggest implications for the baby bust generation (born 1966-1985) as they approach what should be their prime earning years, and for younger baby boomers who will be facing a vacuum of demand from younger generations when they want to retire, sell the family home and downsize. Over-building and spiking foreclosures have already produced an over-supply of large suburban homes for which there is little demand or ability to purchase. Gen X and Y will not do much to help solve this problem.
"Aging boomers will be reluctant to sell their homes for two reasons. One, they may be underwater on their mortgages and waiting for the market to rebound and two, they are healthier than their parents’ generation and will likely delay the move to retirement community living. Only time will tell if a market will exist for their homes when they are ready to sell. However, the income constraints and lifestyle demands of a shifting population may dictate a very different future.
"The Gen Y population, or echo boomers (born 1986-2005), the largest pool of renters, is now in their prime rental years, but many have found themselves jobless with no way to pay the rent. Forced to move in with mom, dad or friends, this twenty-something crowd has been hard hit by the recession. Nonetheless, they are poised to redefine the American dream for generations to come. When employment growth returns, they will be a key driver of rental demand.
"All in all, there are some big changes afoot in the housing market that shifting demographics will continue to amplify. The changing needs of an aging baby boomer population as well as the demands of the burgeoning Echo Boomer generation will require that the real estate market respond in new and different ways."
Forecast demographic shifts will bring dramatic changes to the housing market. Both retiring baby boomers and maturing echo boomers are expected to move away from suburbs into more urban, mixed use, mixed age areas with a sense of community, easy access to services and transportation.
However, achieving this dream for the younger segments may be financially out of reach. The over-built suburbs have been the hardest hit by home devaluation, and so represent the greatest values for would-be homeowners. Urban living may be financially out of reach. For Generation Y'ers who prefer an urban lifestyle, it is not clear yet how this economic conundrum will be resolved.
The RISMedia article concludes, "What is clear is that the growth of an economically challenged echo boomer generation will make affordable housing even more important.."
Our housing market in Hawaii is unique in the country, because of the supply/demand equation of increasing housing with the limited resource of buildable land. Our climate and lifestyle encourage immigration, but our isolation brings greater living and building costs.
I certainly don't pretend to see into the future. The next decade or two will bring together forces of change which will affect much more than the real estate market. I do feel, however, that being aware and up-to-date on Hawaii housing values and neighborhood changes will make you a wiser investor or seller, when you do decide to enter the real estate market. Call or email me if you'd like to talk about your own community and sales trends in the Islands.
Barbara Abe, Realtor