From a small northwestern observatory…

In an on-line forum, I was asked recently, “In the USA, how will the aging of the “baby boom” generation affect the future of the housing market.”  My answer was as follows:

Well, there’s an old joke in economics — “How did the French revolution affect world trade?” Answer: It’s too early to tell.

Without question, the baby boomers spent a LOT of money on bigger houses, more vacation homes, and lots of other conspicuous consumption toys (boats, airplanes, etc.). It is becoming clear that the subsequent generations do not have the same taste in housing. This is going to mean some radical shifts in the nature of home ownership. Conversely, the boomers are living a lot longer than prior generations, and living independently longer. This means that the aggregate demand for housing is a function both of the size and the shape of the demographic “baby boom” bubble.

Consider that the boomers in the USA are often referred to as the “pig in a python” generation. The birth rate in the USA took off like a rocket about 9 months and 15 minutes after the end of world war II. (Think about it). The birth rate collapsed, more or less, about 9 months and 15 minutes after the introduction of the birth control pill (not exactly, but the analogy is useful). As such, this pig-in-a-python demographic is moving thru the economy, and refuses to get old and die. (I write this as someone born at the absolute crest of that wave.)

Note:  Baby Boom Generation shown in red.

The future implications for housing, housing demand, and the mix of housing demanded by the market, will be dramatic. However, we don’t yet know all the details and shape of that demand, and may not know for some years to come.

Sixty percent or more of American households own some kind of real estate, even limited to the home they live in.  Perhaps even more Americans may indirectly own real estate thru a pension plan or 401-K.  Wealthy families nearly always have significant real estate holdings, both for the portfolio diversification aspects and as a hedge against economic bad-times.

The recession of 2007-09 left a lot of investors gun-shy.  Historically in the U.S., real estate has been a solid investment in both good-times and bad, and since WW-2, single family homes have increased in value about 2% above inflation, year-in and year-out.  However, before, during, and after the recent recession, real estate prices roiled in much of the country, although admittedly prices seem to be back on an even keel.  Nonetheless, investors continue to be nervous, and rightfully so.

Of course, for investors, developers, and managers with more complex portfolios, these questions require a bit more of a portfolio audit.  For the securities investment portfolio, significant resources are available to manage and evaluate investment choices in the face of changing circumstances.  For real estate investors, tools are somewhat more granular and heuristic.  Nonetheless, the stakes are high, and a solid real estate portfolio audit is a must-do on a periodic basis.

What should an investor expect out of such an audit?  For a securities portfolio, the answer is simple — some stocks get sold, others bought, and some resources get shifted to other asset classes.  For real estate, the key may be simply be one of management or financial emphasis.  If a recession is coming, and vacancy rates rise, then operational and financial leverages change.  These may necessitate financing shifts or evaluation of current and prospective leases.  Development plans may need to be put on hold, or conversely perhaps accelerated.   Some properties may need to be re-aligned or even positioned for redevelopment after the trough of the recession.  Shrewd investors keep a lot of dry powder going into a recession, as buying opportunities will abound.

If you have questions, drop me a line.  I look forward to the opportunity to chat with you about these things.

So, the Rock Hall of Fame has announced the nominees for the Class of 2020.  Other than the continued oversight of Steppenwolf, I think it’s a great list.  (You might refer to some of my meandering about the Rock Hall on the sidebar, to the right of the screen.)

Pat Benatar, Dave Matthews Band, Depeche Mode, the Doobies, Whitney Houston, Judas Priest, Kraftwerk, Motorhead, Nine-Inch-Nails, The Notorious B.I.G., Rufus featuring Chaka Khan, Todd Rundgren, Soundgarden, T.Rex, and Thin Lizzie make up this year’s nominees.  Regular readers of this blog will probably guess my preferences.  The oversight of Whitney Houston and the Doobie Brothers over the years is nearly unforgivable.  Ms. Houston is the ONLY artist to chart seven consecutive No. 1 Billboard Hot 100 hits, and “I Will Always Love You” is the best-selling single by a female artist in music history. The soundtrack to The Bodyguard is the 4th best-selling album of all time (behind Michael Jackson, AC/DC, and Pink Floyd, all of whom are in the Hall). Add to it — and this is amazing — her soundtrack to The Preacher’s Wife is also the best-selling GOSPEL album of all time.

The Doobies are my personal favorite act of all times. Their induction ought to be a given — they are on nearly everyone’s “WTF” omission list. One of the biggest problems the Hall will have is picking exactly WHICH members of the Doobies get to receive the award — there have been nearly 100 Doobies over the years. This was a problem with Chicago — the original 7 from the first few albums got inducted, but none of the band-members who joined after Terry Kath died and Peter Cetera left. (By the way — wasn’t Cetera a jerk for not showing up????). Anyway, it would be hard to argue that founders Tom Johnson, Patrick Simmons, Dave Shogren, and John Hartman don’t belong on the stage, plus Michael Hossack, Skunk Baxter, Tiran Porter, Keith Knudsen, John McFee, and of course Michael McDonald. That group, plus a few others, would pretty much cover everyone up thru their 1982 disbanding, and all of that crowd should be on the stage sometime soon.

Of the rest, of course Judas Priest, Notorious B.I.G., and Todd Rundgren will be Rock Hall inside favorites.  However, my votes (and so far, the largest number of fan votes) would go to Pat Benatar.

Fans can vote for up to 5 nominees each day.  The top 5 vote getters will be counted along with the normal judging, in a secretive fashion known only to the top members of the Illuminati and, apparently, the Pope.  Simply visit www.rockhall.com to make your voice  counted, however, they manage to count these things!