Strong demographics have fueled the U.S. demand for housing over the last several years. As millennials, now the largest generation alive in the country, hit their peak home-buying age, demand for home purchases and rental units has surged. This demographic strength has been one of the several variables that have pushed up home prices since prior to the pre-pandemic period.
But demographics isn’t everything when it comes to demand—economics matters too. And with persistently high inflation, and a great deal of economic uncertainty, there is the risk that demand for housing could slow in the coming years. What happens to demand over the coming years will have big implications for real estate investors.
As such, in this article, I’m going to break down recent demand trends, provide a forecast for national demand over the coming years, and give a list of the top and bottom 10 markets for housing demand growth.
Measuring Demand
There are several ways to measure demand for housing. We typically look at total sales volume, mortgage purchase applications, and some conglomerate metrics like inventory and months of supply to measure the balance between supply and demand. In the rental market, we typically use a metric known as “absorption”, which measures the total number of occupied rental units in a given market. To combine these different markets into one useful metric, I like to track the total number of households and the growth rate of that number.
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If you’re unfamiliar with the formal definition of a “household,” the census website states, “A household (or “ordinary household”) in the sense of the census survey describes all the persons sharing the same main residence, without these persons necessarily being blood-related.”
In other words, any housing unit occupied as a primary residence is a household. If you live with your parents, that’s a household. Live with a partner and your kids?…