Demographics is usually kind of like watching grass grow...but when something somewhat shocking is taking place, and nobody seems to be talking about it...well it deserves a spotlight.
I think it's fair to say, so goes California, so goes the US...
So here goes a quick article on California annual births versus California home prices...let's dig in.
1- After rising for a century+, births in California peaked in 1992 and have been falling precipitously since. Annual births have now declined by nearly 200 thousand or -32% amid the largest childbearing population in US history. The decline in births (inclusive of ALL births, regardless parents' legal status) has been going on for so long that now the under 30-year-old population has begun the follow through of that birth decline. A like 30% (and growing) decline is to be expected eventually for the entire population of the state, working its way from youngest to eldest population segments.
Soaring housing prices amid declining annual births would seem logical as young adults are most likely to be negatively impacted by the rising costs of living...and choosing to forego marriage, children as a result.
Unsurprisingly, California's annual population growth accelerated, then peaked in 1989, and was decelerating until 2019...then outright declining since. Many assume it's the state's politics, or tax policies, homeless, or unaffordability driving a temporary decline...but in truth, California's decline is coming from bottom-up negative demographics...only worsened by the sudden exodus.
A perusal of California's population by age groups (0-30yr/olds, 30-60yr/olds, 60yr/olds vs total housing units) highlights that the youngest segment began its demographic driven secular decline in 2015 (following the declining birth trends) and the 30 to 60yr/old segment began its decline in 2020. The 30 to 60 year-old cohort began falling earlier than it was going to demographically...primarily due to a slew of political, business, tax, and lifestyle issues in California. However, housing unit creation continues unabated.
Below, California's year over year changes in population, by 20-year age groups, set against annual growth in housing units. The demographic deterioration is easy to see. All segments are now in decline except the ongoing growth of elderly...demographically, these trends are likely to not only continue but accelerate.
Putting California's declining population into perspective against its rising housing units...take note of the red line, detailing housing units per capita in California at a new all-time high, surpassing the previous peak set in 2007. This is just to suggest that there isn't a housing shortage, rather a housing affordability crisis which isn't borne of inadequate housing...but inappropriate Federal Reserve set interest rates and asset purchasing, federal government debt creation, and state/local tax/regulations (ie, Proposition 13 (1978) limiting the property tax rate to one percent of the property’s assessed value plus the rate necessary to fund local voter-approved debt. It also limits increases on assessed values to two percent per year on properties with no change of ownership or no new construction).
I suggest a crisis is imminent in California as a shrinking working age population is at record high total number of employees (and likewise record employment %)...suggesting there is little to no further fuel for employment growth available. The demand pushing that record employment was short-term interest rate driven deficit spending, stimulus, PPP (much of it straight fraud), etc. etc. As the Federal Reserve is "normalizing", demand and resultant employment will likely fall precipitously.
Below is annual California population change (divided between under 65yr/olds vs 65+yr/olds), annual change in net housing units, and resultant change in home prices. Given the declining under 65 year-old population makes up essentially 100% of the 1st time home buyers, 90%+ of the states employees...the imbalance of inverting demographics, record high home prices, record housing units per capita, at record high short-term debt fueled employment rates, amid significant ongoing housing unit creation could/should give one pause?!?
The idea is to keep this article short...so I will not detail the interest rate and asset purchase manipulations that resulted in a housing price surge amid decelerating/declining quantities of potential housing occupants. But just understand as long-term organic demand moved lower (left to right), short-term synthetic demand moved upward (left to right). If those short-term manipulations are not maintained &/or increased...a likely housing price decline or collapse would be the most likely end-result.
*Demographic and housing unit data thanks to US Census, Home price index thanks to US FHFA.
PS - how this started, where it's going...