Wednesday, February 17, 2010

They're not freeloaders...

They're latent demand.  All the twenty-somethings who have returned home to cut expenses could be a big part of any recovery in housing.

Amid recession, fewer households are formed, in no small part because more family members live together to cut down on expenses. In particular, the kids aren't so anxious to be out on their own these days:
The number of 18- to 24-year-olds living at home increased by 300,000. This recession has been particularly hard on younger workers.  The number of jobs held by 20- to 24-year-olds declined 4.5 percent in 2009, while the number of jobs held by people over the age of 25 dropped 1.8 percent.
As Mr Glaeser notes, slow household growth puts off housing market recovery, which prolongs the period during which residential investment and construction aren't contributing very much to output. And that's true. But I think it's also probably worth recognising this as a source of shadow demand. Shadow housing supply, recall, refers to housing units held by banks and homeowners who'd like to sell their properties but who are waiting for better market conditions. It is supposed that any brief uptick in housing could quickly lead to renewed decline as shadow supply hits the market.
But it's also likely that there is shadow demand in the system. I suspect that as economic conditions improve, twentysomethings living at home will quickly look to move out and start their own households. This, in turn, will support housing demand, housing prices, and housing construction, buoying the initial uptick.
To put this another way, everything comes back to unemployment. If you get steady job growth, many housing concerns (though not all) will begin to take care of themselves. Unfortunately, America has still had only one month of payroll growth since the onset of recession. [More]

Working from only a few anecdotes, I wonder if this phenomenon isn't muted in agriculture as ag college graduates still seem to be finding work in the relatively robust agribusiness sector. And while living with the parental units may be a drag in town, it's the pits in the country.

Still, any difficulty finding work for Junior may evince itself as added (as if we needed any) pressure to expand the farm.  I find that part of my thinking with Aaron home now, and while hard to parse out from any rent data, I'll bet it's adding $30-50 per acre to rents.

In conversations yesterday in NE with some younger producers (and wannabees) I thought I also caught a glimpse of fathers reluctant to step down because they suddenly can't pencil out a comfortable retirement from their savings. It takes a wad of moolah to support a condo in FL at 3% returns.  So the succession escalator is stopped for some.

Those with owned land they could rent for big bucks are different, but guys who had the good fortune to rent 1-2 big acreages on shares for twenty-plus years for example, had little reason to take the plunge into expensive ownership.

Poor guys are left with nothing but money.


Anonymous said...

John good thoughts. Those of us in our late thirties thinking that buying more ground now will put us in debt till we are 60. But waiting five years pushes this bacvk to an age we may not be comfortable with. However with boomers not retiring we can see that it well could take another five years before a lot of opportunity again arises. I see a lot of guys who started in the late 70's who are sitting there with quite a bit of equity and really on easy street and when they talk to thier off farm cousins they see they are much better off than the mom and pop commercial business who they used to eye with envy. Maybe they are better off just paying a son a very handsom wage which couldn't be offerd off the farm and keeping control. The Problem of off farm heirs just waiting for the big pay day. When that happens some of us will be waitng with pent up shadow demand for farm ground. The real benefit will be to the guy an gal who left the fsrm and then waited for the pay day. Us poor shlubs who came back may never be outa debt! ( especially those of us who milk cows). JR

Anonymous said...

I just retired from farming, I am 56. My son and I started a plan 10 years ago, he is 36. Now he and his family are free too make their decisions good or bad. The greatest gift my dad gave me was turning it over to me and retiring at about the same ages as my son and I are now. Sometimes I wonder if the guy's that keep on are just plain old greedy.