Housing Markets and Demographics

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 31/2% per year from 1987 to 2004. Of course, the MankiwWeil 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.