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The real estate market continues to break records, but not in ways that favor first-time buyers. According to the National Association of Realtors (NAR), the average age of first-time home-buyers has climbed to 38, up from last year’s record-high of 35. Even more striking, the average age for all home-buyers has skyrocketed to 61, a dramatic increase from last year’s then-record of 48.
The current housing market defies conventional economic wisdom, particularly when it comes to inflation and supply-demand dynamics. To understand why, we need to look at recent history and some unique characteristics of housing as an asset class.
During the era of historically low interest rates (2-3%), we witnessed a dramatic increase in purchasing power. As Milton Friedman noted, when money flows freely in circulation, initial enthusiasm is high. However, this monetary expansion inevitably leads to inflation, with prices and costs eventually catching up – exactly what we’re seeing today.
While most goods and services eventually stabilize in price following inflationary periods (think food, appliances, travel, or gas), housing follows a different pattern. Why? The answer lies in two crucial factors:
Policymakers face two main options to address the housing crisis:
For those working in real estate and lending, success in today’s market requires focusing on where the opportunity lies – specifically, the 40-50 age demographic. This group is benefiting from the largest wealth transfer in human history as Baby Boomer parents transition to assisted living or pass away.
While the housing market may seem daunting, understanding its unique dynamics and focusing on the right demographic can lead to success. The key is to remain active, helpful, and consistently take initiative, even when the path forward isn’t entirely clear.