Boom Echo

In most financial circles today, real estate investment is dismissed in a standard, "everybody knows" script.

It goes like this: real estate values rose in the last 20 years because the baby boomers were buyers. Now the boomers have traded up to the biggest houses they will ever own, and soon, as they trade down, the market will be flooded with the boomers' empty nests. The follow-on generation is far too small to soak up the selling, and real estate prices will be flat forever.

Everybody knows that.

Financial types -- stock and bond analysts, brokers, bankers, and even many financial planners -- are hostile to real estate for two reasons. First, real estate is messy. No two pieces are alike, you can't look up accurate values in the paper, or call up the market on a screen, or trade it over the phone. There is always too much of it for sale, or too little.

Second, money people are embarrassed that real estate tends to outperform financial investments. In one pending example, the largest part of the record trillions to be inherited by boomers can be traced to their parents' wise investment in a home.

The embarrassed often construct wishful theories for the demise of the competition. Equally often, these theories collide with reality, and the most recent victim is the "everybody knows" demographic model for real estate.

The doomers base their model on the "baby bust" (generation "X") which followed the boom, and express no further interest in demography. Too bad. It turns out that a lot of babies have been born since the bust.

The Education Department reports that 51.7 million kids are heading off to school this week. The old record -- the boomers -- was 51.3 million students in 1971. The new record will last one year, and be broken next year, and the next, andÉ. For a demographic certainty, enrollment will set new records in each of the next ten years in a row, to a peak three million students above the boomer record.

I hate to break it to mutual fund salespersons, but these schoolkids are future homebuyers. We don't yet have a nickname for this still-in-school generation: the X'ers are already out, so maybe these will be the Y's (Y not?). Demographers refer to them as the baby boom "echo," a delayed rebound off the original bulge.

The echo is delayed because many boomers delayed parenthood, and the tardiness of the Y's will have an effect beyond their mere potential as buyers.

Delayed parenting means nestlings will be perched in our homes a lot later in our lives than we were in our parents'; most of them were empty nesters by their 50th birthdays. (Boomer, dream on.)

In case you are not one of the aging boomers with little kids, or a demographer, go hang out near an elementary school some morning, and check out the cute kids and their graying, thinning (hair; no place else) parents.

We dropped off our oldest in first grade this week, and in the back half of our forties did little damage to the average parental age. The crowd was dressed in full boomer regalia: mixed cycling gear and Patagonia pieces, a Jerry Garcia necktie here, a tie-dyed T-shirt there, and lycra on the way to the local sweat n' grunt.

Nobody in that crowd is about to list the house and trade down. In fact, we may soon wish for a bigger place, or at least one with thicker walls: imagine sixty year-old parents sharing a house with teenagers.

No, better not. Echo is hardly the word.