Tag Archives: Brookings Institution

JCHS: 2012 Population Estimates for Metropolitan Areas

by George Masnick
The Census Bureau recently released 2012 population estimates for cities and towns to complement the 2012 population estimates for metropolitan areas released in March.  With these two sets o f data it is possible to examine the split between primary city and suburban population growth trends.  My favorite blogger about census data, Bill Frey of the Brookings Institution, quickly released a commentary on these new data with the lead sentences: “Big cities could be making a growth comeback after a rocky decade. Their growth rates are rising and, for the second year in a row, they are growing faster than their surrounding suburbs.” 
He goes on to note that: “Among the 51 metropolitan areas with more than one million residents, 24 saw their cities grow faster than their suburbs from 2011 to 2012. That was true of just 8 metro areas from 2000 to 2010. Metropolitan areas exhibiting the largest city growth advantages included Atlanta, Charlotte, Denver, and Washington, D.C.”
Frey based his analysis entirely on growth rates, but it is the growth numbers that are more relevant for understanding city versus suburban housing demand.  When population growth numbers are examined, only 12 metros had greater numerical growth in the cities versus in their suburbs. Only seven metros on Frey’s list of 24 cities with higher growth rates than their suburbs also had higher numerical growth (Austin, Columbus, Louisville, Nashville, New Orleans, New York and San Diego).  Cumulatively, overall suburban population growth in the nation’s 51 largest metro areas outstripped overall primary city growth for 2011-2012 by a ratio of almost 2:1 (Table 1).  Atlanta, Charlotte, Denver, and Washington, DC, the four metro areas Frey singled out for their large city growth advantage, had suburban growth numbers that exceeded city growth numbers in 2011-2012.  (Click table to enlarge.)
** Abbreviated name.  Primary cities are defined as the metropolitan area’s largest city and up to two additional cities with populations exceeding 100,000.
Nor are the places where cities have a numerical growth advantage necessarily trending to increase that advantage. Of the 12 metros where cities had more absolute growth in 2010-11, six didn’t sustain that advantage in 2011-12, and four saw a decline in the advantage.  Only two metros had city growth advantages that increased in 2011-2012 (data not shown).
The key to explaining the differences between growth rates and growth numbers, of course, is the fact that for most large metro areas the suburbs have more people than the cities. Of the nation’s 51 largest metro areas, only five had greater primary city populations in 2012.  Three are sprawling metros located in the South and West (Austin, San Antonio and Jacksonville), and the remaining two in this category butt up against other metros and geological barriers to suburban growth (San Jose and Virginia Beach).  The vast majority of suburbs contain more population than primary cities, with Atlanta having more than 11 times as many people living in the suburbs; Hartford, Orlando, Providence, and St. Louis around eight times as many, and Washington, DC over 6 times.  Percentage rates of growth calculated on such disparate population bases are really not comparable.
Primary city population growth has been reinforced in recent years by the aging of the echo boom into the young adult population, because young adults often move to cities to go to college or to work.  Large gains since 2005 in the 18-34 age group have helped turn city growth rates positive in many cases.  There were 3.8 million more 18-34 year olds in 2011 than there were in 2005.   Young adults who move to primary cities of large metros have made the 18-34 age group the largest of the three age groups plotted in Figure 1.  In the suburbs of these metros, the 55+ age group is the largest.
Source: 2010 Decennial Census.  For a list of metro areas see Table 1.
There are three main demographic drivers of population change in the suburbs of large metropolitan areas.  First, and most important, is the aging of the suburban population. An aging population creates two pressures for population growth to slow.  The children of these households are themselves becoming adults, fleeing the nest and often heading for the city or to places outside of the 51 largest metro areas.  As these suburban households age, deaths also increase and births decrease.
The second driver of suburban population growth is the housing turnover of aging baby boomers.  Household dissolution from death or divorce could create opportunities to boost population growth from younger and growing households who replace them. Life cycle migration out of the suburbs of large metro areas by smaller baby boomer households as they enter the empty-nest stage or retire from the labor force does the same.  However, the Great Recession and its slow recovery has dampened housing turnover in recent years through a variety of mechanisms.  Among the most salient of these are high unemployment and slow wage growth; owners who would like to sell but are underwater with their mortgages; tight mortgage lending by banks; more people working past age 65; loss of home equity wealth that was counted on to partly fund retirement plans; and lower immigration levels reducing housing demand.
The third driver of population growth in the suburbs has historically been new housing construction that attracts in-migrants.  Again, new construction during the Great Recession and its slow recovery has been at historic lows, and suburban growth has slowed as a consequence.
Looking forward, the aging of the baby boom will continue to dampen population growth in the suburbs.  Most baby boomer households will simply age in place and decline in size. Over the next two decades, some housing that is freed up by household dissolutions by cohorts born before 1945 and by the oldest boomers, or by housing released by these cohorts who do retire to other places, will help mitigate population loss in the suburbs because those buying their houses are likely to be younger than the sellers and have larger household sizes.  But the greatest opportunities for housing turnover in the suburbs will not take place until baby boomer households dissolve in significant numbers beginning in 2030.
During the next decade, some of the factors that have depressed housing turnover in the suburbs in recent years should run their course.  New housing construction will be needed to accommodate adult population growth from aging echo boomers, and possibly the next wave of immigrants. This should largely take place outside of primary cities – where land is more readily available.
While I do concur with Frey’s point that large city population growth is a welcome positive for their health and vitality, I also agree with his suggestion that a rebounding housing market could lure echo boomers, immigrants, and retirees out of large cities in the future.  While suburban growth rates will never approach the levels experienced in their earlier years, the suburbs should continue to grow in population now and well into the future.

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The booming collapse of housing

The booming collapse of housing – why housing will be a bad investment for the current decade. 5 charts exploring the demographic and financial perfect storm with U.S. real estate.

The American housing market is entering into a perfectly orchestrated storm of demographics, debt, and cultural shifts.  Strongholds do fall and deeply held economic beliefs can crumble in a few short months.  If you were to tell someone in 2007 that a lost decade in housing values was just around the corner you would have had a heck of a time trying to convince them.  Yet here we are, inching closer to a lost decade in home values.  There is a financial tempest ahead of us.  Home prices have locked in a lost decade but what about two lost decades?  Don’t rule this out until you hear the potential reasons why another lost decade is very likely for American housing values.

Reason #1 – Dual income peak


Source:  Tax Foundation

Part of the reason home values went up from the 1950s through 2000 was largely based on the two income household.  Single wage households became a smaller minority while two paychecks made their way into the household bottom-line.  Of course this provided more income to be spent on housing.  Yet this trend hit a peak in the 1990s.  Actual household wages have fallen for over a decade so no longer can the dual income argument be made to support higher prices.  What is also problematic is that the rise in dual income households hid the reality that actual per capita wages were falling behind for the last decade.

Part of this trend is also based on the demographics of our country.  Raising a family is not cheap so two paychecks in many cases is simply an economic necessity.  However many baby boomers are now entering retirement age with many of their kids reaching adulthood.

Reason #2 – Older America

age of us population

Source:  Brookings Institution

The U.S. population is undoubtedly getting older.  Many baby boomers will look to downsize but demographic shifts will provide fewer potential buyers for those over priced homes.  The population is growing but the younger generation is not seeing the large wage gains that baby boomers experienced.  So what you have is the largest cohort of Americans gearing up to sell homes simply because of natural progression but a smaller and poorer young cohort unable to pay the inflated prices many have come to expect.

The chart above provides a rather clear look at where things are heading.  If current trends are any indication older Americans will vote to protect their funds while pushing on debt to their children and grandchildren.  Unfortunately we are not seeing any shared sacrifice here.  Yet in a karmic twist baby boomers planning on selling homes and stocks into the market will have lesser demand simply because they have a smaller group following in step.  This trend is not going to change so this will add fuel toanother lost decade.  I’ve seen a few people counter this argument by saying we are not Japan and that our population is growing.  This in fact is true but much of the growth is occurring with people picking up lower paying jobs.  In other words, no big payday for the McMansion.

Reason #3 – Case-Shiller double-dip

case shiller index

The Case-Shiller Index is already reflecting a double-dip in home values.  Prices are back to 2003 levels and this is only the case because banks continue to maintain an excessive amount of homes in theshadow inventory.  The fact that we are double-dipping with historically low interest rates and street vendor like gimmicks tells us many American households are completely maxed out.  40 to 50 years ago virtually any household with a desire to purchase a home could do so without going into gargantuan debt.  Today, even a professional couple would likely go into massive debt for a tiny box in an overpriced neighborhood.  Yet as the above chart is reflecting, that bounce is largely running its course.

Home prices in many regions of the country are still inflated.  More pressure will come as the shadow inventory is leaked out but also the natural flow of selling from older American households looking to retire and downsize.  Banks can hide some of their dubious loans but you can’t stop the clock on aging.  Some boomers with their pensions and 401ks will need to sell into a market with much lower demand.  Did people ever bother to look at the numbers?

Reason #4 – Housing dynamics

status of us housing

Source:  US Census

It is useful to lay out the entire housing data for the United States to get a better picture of where things stand.  24 million Americans own their home free and clear (this doesn’t clear them from paying annual taxes, maintenance, and insurance by the way).  51 million Americans own a home but with a mortgage.  37 million rent and another 15 million housing units sit vacant.  The percentage of vacant homes is alarming.  This is simply more inventory out in the market that needs to be absorbed.  There is little demand for new housing when so much housing is already destined to come online.

When you look at this data carefully seeing another lost decade in home values becomes more apparent.  The only wildcard in all of this is if we start to see real household incomes going up.  Are we even seeing this?  To the contrary, the employment situation is tenuous and the numbers hide the grim reality that many people have taken up new jobs at much lower wages.  How is this evidence for rising home values going forward?

Reason #5 – Median home price

median home price

The median home price has fallen dramatically because of toxic mortgages exiting the market but also because household incomes have remained stagnant for over a decade.  It should make logical sense that home prices cannot move up without household incomes moving up as well.  The gimmicks of low rate teaser mortgages are not enough to mask the financial doldrums we are living through.  A large part of this is unavoidable simply because of the demographic nature of our country.

Depending on what measure we look at U.S. home prices are down 30 to 34 percent from their peak reached in 2006.  Adjusting for inflation this figure looks more daunting.  Lower priced housing seems to be the new status quo.  It is hard to say how hard home prices will fall moving forward and some areas have pockets that are still reflecting bubble like dynamics.  There is little doubt the next decade will be a tumultuous one for housing.  Those arguing for rising home prices ignore the booming demographic tsunami now aligning itself with the epic shadow inventory on the banking balance sheets.

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