My father sent me an interesting article from last year about the demographic aspect of real estate prices. It says people have different property needs at different ages, so as a large age concentration like the baby boomers pass through an age, there is more demand for the types of real estate they use. I have never thought of land use as generational, but it completely makes sense. The article predicts housing price declines in 2010s due to changing needs of the baby boomers.
I agree with the article, EXCEPT I think liberal financing vehicles and speculative mania drove the bubble more than actual need for housing by any demographic group. If the bubble were caused by increased demand for housing, rents would have risen too. Inflation-adjusted rents stayed constant. I predict more declines in this decade because financing vehicles and speculative mania are drying up, and I predict that factor will predominate over all others.
When you look at the long-run, real housing prices take large (sometimes 30% or more) swings up and down around the same value. They've been doing that since the Civil War. Demographic shifts are one cause of the up-and-down swings. The latest upswing is almost 100% above the average, but it's the same idea. If people planned for reversion to the mean, large price swings over a period of a few years would not be a cause for celebration or panic.
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