Realty rates follow population

US housing markets showcase fluctuations of birth rate and demand, offering clues to China's future prospects

Realty prices in the United States have fallen by more than 30 percent since the 2008 subprime crisis. That is partly a result of bursting bubbles, but one of the root causes lies in changes in US population size and structure, which brought declining needs and consuming power.

A primary index of supply-demand relation in the US housing market, vacancy rates have been constantly rising since March this year to reflect the declining consumption capacity of residents.

The vacancy rate of self-owned houses has risen from 1.8 percent in 2004 to 2.9 percent in 2008, and was kept at 2.7 in the past two years, above the average 1.4 percent after the last crisis. The rate for rented homes has also risen from 9.4 percent in 2010 to 9.7 percent in the first season this year.

Thanks to such imbalance in the realty market, US realty prices have fallen by 4.2 percent in the first season of 2011, a new record.

The cause of the falling prices is demand saturation, which is in turn decided by the changing size and structure of the population. The cycle of the US realty market is about 20 years, a period deeply linked with US population change. Since the 1990s, the US birth rate has been kept at a low level.

According to official data, the current US population is 308 million, while the growth rate for the whole passing decade is 9.7 percent, the lowest since 1940.

For a long time, US population growth has come mainly from immigration and births of second-generation immigrants, which now account for 82 percent of the total. However, the two recent economic declines and native residents' attitude toward them have slowed the number of people coming to US.

According to research by the A. Garry Anderson Center for Economic Research, in the beginning of the century, realty prices rose by 13.8 percent in Washington and neighboring regions along with the waves of immigration.

That number hit 37.5 percent in north Virginia and Maryland, where immigrants have increased by 113 percent.

The regions with few or no immigrants offer a deep contrast. Of the 10 regions that saw immigrant numbers fall by 39 percent on average, realty prices have also fallen by 7.6 percent.

Population structure can also influence market demand. The ratio of US housing prices to household annual income was between 3 and 3.5 in the 1970s, but it rose sharply by 2008.

That is also when the baby boom generation, which numbered 77 million and accounted for 35 percent of all US adults, has become the main group buying houses in the market.

With more people willing to buy houses, US housing prices were pushed up by 20 to 30 percent annually.

But that will not last long because birth rates in the US are kept low. By 2030, the baby boom generation will be in their 60s, and more than 20 percent of all US citizens will be above 65 years old; this age group is expected to double in 2050, from 38.7 to 88.5 million.

Declining birth rates and an aging population will bring down housing demand in the US, especially those of large dwelling-sized ones that once fueled the housing market.

Looking back at the past century, urbanization also means the process of city expansion, in which the realty market is a key propelling force.

But in this increasingly aging society, people tend to live more in suburban regions with lower living costs and less pollution.

Therefore, housing prices in city centers also face downward pressure and might even bring down the market as a whole.

There have never been any rigid demands in realty markets. In fact, population size and structure affect the changing needs. That applies to the US as well as to China.

According to UN data, China's demographic bonus will fall to global averages in about 2025. That will also influence the supply-demand structure of the realty market.

Population growth in China is estimated to begin to fall after 2015, while the number of people over 60 years old will be able to reach 240 million by 2020.

That period might very possibly be key to China's realty market.

The author is an economics researcher with the State Information Center.