The Death of the First-Time Home Buyer || Peter Zeihan

Hey, all Peter Zayn here, coming from Colorado. Today we are taking a question from the Patreon page,

specifically about housing. First time home buyers in most parts of the country are now dealing with

prices that are in excess of 300 grand, which basically traps them in paying rent for ever because

the getting the cash that's necessary to break into the housing market and start building wealth

in terms of equity is almost impossible now unless you're lucky in some way. Totally true. So

will changes in demographics bring down prices in housing. Yeah, but probably not in the timeline

that you're hoping for and it's not going to be all because of secondary effects. So a couple of

things to keep in mind. Number one, when it comes to economic growth, about 1% of GDP growth happens

every quarter because of new home construction and about another half a percent of GDP happens

from people basically furnishing and renovating those homes. So 1.5% GDP, which a lot of

people in advanced countries who have negative population growth considered to be really good

because they no longer have consumption-driven growth. So having any sort of investment-driven

growth like this is great, but if you have negative population growth a lot of that kind of bleeds

away. The question is how fast can it bleed away that you actually burn through some housing stock

to the point that supply and demand start to rearrange? The thing is even with the Trump policies

we have right now, which have generated negative population growth in the country. In order for

supply to drop more than demand, you need to have a lot faster population decline. Two problems

there. Number one, but right now on average, about 1% of the housing stock is either destroyed

through fire or tear downs every year. So until such time as population growth drops faster than

home destruction, you're not going to really have that change in supply and demand that you're

hoping for. The easier way is simply to build more homes. The second problem is age blocks. As you

get older, you get wealthier and everybody needs a place to live. So you're always going to have

demand from people over age 40 and especially over age 50 who have more capital. That demand

is hardwired in. And what we were thinking maybe, as a few years ago, we were thinking that as

the baby boomers retired, they might be moving into group living homes. It turns out that they

really just wanted to age in place in their homes. And a lot of millennials started moving into

retirement communities that had been retooled to be kind of community centers because they liked the

social aspect of living more than the baby boomers. And so in many ways, from a cultural point of

view, from an economic point of view, we got the worst of all worlds and that the people who had the

money decided to sit on their money and the people who really needed to be starting their lives

decided to basically live in a party house. That is now changing. Almost all the baby boomers

have now retired. The last of them will be retired by 2030. And the millennials, finally seven

years later than average generation ages started having kids and buying homes and getting married

and all that good stuff. So the numbers are starting to make more sense. But this is a multi-year,

maybe couple of decade process. And as you all know, that is more than enough time for us to have

other changes to the macroeconomic situation that can say generate a huge swath of new home

construction or really tank lending costs. And lending costs is really where the problem is going

to be because as the baby boomers retire from the system completely, we just won't have as much

active capital in the system. And if there's not as much active capital in the system, it's going to

be harder for banks to raise the capital. It's necessary to then lend out. So I would argue that while

we might get a little bit better structure in terms of number of homes versus those who need to

get it on the low end, we're also going to see higher financing costs at the same time, which

is going to leave them more or less in the same situation at least for the rest of this decade.