Immigrants, Minorities Will Add to Demand During Next Decade

There’s a positive demographic sign out there that despite a recent pullback, indications are strong that immigrants and minority families will help bolster demand and home-ownership over the coming decade.

Household formation, a key component in housing demand, has been slipping recently.  Annual net additions fell from 1.37 million in the early 2000s to 1.06 million the past three years.  Estimates suggest a figure close to 800,000 for 2009.  Historically, new households have a major impact on the real estate industry, as they represent a vital influx of renters and/or buyers.  It’s important for these families, often first-time buyers, to push the market upward and forward.

Immigration has always been a big factor in household formation, but the recession has made it a wild card of sorts.  This year’s “State of the Nation’s Housing” report, prepared through Harvard University’s Joint Center for Housing Studies, notes that economists are divided about immigration trends over the next few years.  If economic recovery comes swiftly, annual net immigration, based on Census Bureau assumptions, could increase from the 1.1 million of 2005 to 1.5 million in 2020.  If the recovery is slow, that gain could be reduced by half.

Even using the lower projection, however, the immigrant influx should combine with the echo boomer group to create an average of more than 1.25 million new households annually for the next decade.   With the low immigration forecast, 12.6 million total household formations would be  in 2010-20, which is comparable to the number from 1995-2005 period, a strong time for real estate.  A higher immigration result would suggest household growth of as much as 14.8 million in the 2010-20 decade.  This is good news for those selling properties, as it indicates that greater demand is just around the corner.

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