Thanks to the trade winds, when traveling by airplane at the same speed from West to East the jet stream is a very high altitude wind that causes planes to go faster in the West-East direction than when they are moving from East to West. I mention this because when it comes to trying to understand the economy it may not be such a ‘random walk on Wall Street.’ In fact, according to me, reading the economic tea leaves is a matter of studying the buying habits of ordinary people based on age.
So let’s look at the economy in such a way to see when demand for things hit peaks and valleys. As we have discussed, for example, you consumed the most potato chips at age 14. The other side of that equation is as a parent you purchased the most chips in your life when you were on average age 42 for your average 14 year old, according to the U.S. Census Bureau. We are all unique, but it’s fascinating to watch us go through life in groups doing much of the exact same things at the exact same time. As I reflect on this information I can go back to Audubon Junior High School and see that there was no way one day could go by without my buying no less than one bag of Lay’s Barbeque Chips. On the weekend, it was not unusual for me to consume one to three bags every day.
Headwinds make it more difficult to reach your destination while tailwinds help you cover the same ground more efficiently. Due to the pent-up demand of servicemen coming home from World War II, thanks to the U.S. Census Bureau we see that 76 million Baby Boomers came out of nowhere from 1946 to 1964. Currently the U.S. population is 325 million people. In 1946 the population was 141 million and by 1964 we reached 192 million, according to the World Bank. When 76 million people become part of the population in a country it’s like a tailwind to real estate prices, which means over time higher prices is the only one way for residential real estate prices to go.
"From 1980 to 2000, forty percent of all homes purchased in the country were bought on lot sizes of one-half acre to ten acres," submits Dent Research. "I thought I was unique in 1999 when I had to buy my family’s McMansion on 2.25 acres which happened to occur right on schedule with the Boomer group." So if Boomers bought the big house on the huge lot during the same twenty year period it is reasonable in my opinion to expect the greatest demographic group in U.S. history to sell during a similar time frame in the future. Which means the residential real estate trade winds may be shifting direction.
"In 1964, the U.S. life expectancy was 70 years old. Today, life expectancy is 79," reports the World Bank. It is interesting to note that according to a new Lancet study in the Washington Post on February 26, 2017, life expectancy will improve for much of the industrialized world over the next twenty years. “By 2030, women in South Korea can expect to live to 90, up from 84 in 2010. Women in France, Japan, and Spain on average will hit at least 88 or 89, up from around 85. Men in South Korea, Australia, and Switzerland will see big gains, living to about 84 by 2030. Fellows from Canada, Spain, New Zealand, and the Netherlands will also make gains.”
It is our home country that is stuck in neutral. In the report, “according to experts who studied 35 countries, Americans will see only a small boost. In 2010, average life expectancy for men here was 76. By 2030, they can expect to live just three more years. For women, life expectancy will jump just two years from 81 in 2010 to 83 in 2030.” The Washington Post observes, what is worth noting is that the data was looked at up to 2013, so researches “missed the unprecedented decline in life expectancy that hit two years later.” The good old USA is one of the only industrialized nations without universal health care. “This means that some groups are getting left behind, and it’s pulling the average down,” said researcher James Bennett, department of epidemiology and biostatistics, Imperial College London.
“Americans also suffer higher rates of death from alcohol, drug use, and mental disorders. We also have high rates of obesity, homicide, and infant mortality, which drags down our average,” declared the Washington Post.
Charles Sizemore, Dent Research likes to talk “about the economic power of the nearly 110 million people born between the late 1930s and 1961, and how to generate a steady flow of income now, and later.” Take a look at his “Nursing Home Wave,” tailwinds behind the ‘landlords’ of the places – skilled nursing facilities, senior housing, and hospitals – that many Boomers will likely spend time in in the coming years.
The chart below takes the number of Americans born every year, adjusted for inflation, and pushes the data out 84 years – the peak age for nursing home spending – so we can forecast peak demand for nursing homes.
Sizemore said, July 14, 2017, “This simple demographic model shows that demand for nursing homes has actually been in decline for over a decade. But 2017 represents the absolute nadir of the chart. From this point on, demand for nursing homes is set to rise virtually every year until the mid-2040s. This demographic model is not intended to be as precise as a sniper’s bullet. I prefer to think of it more as a shotgun. You point it in right direction, and it’s likely to hit its target. But what this model tells us is that demand for senior care is set to rise for a long time to come.”
Jeff Hanson, Chairman & CEO, Griffin American Healthcare REIT submits, “10,000 people a day are turning 65 through the 2030s.”
The data suggests to this observer that at the same time that there are severe headwinds to home prices continuing to rise every year, there are considerable tail winds to health care related real estate.
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