Anyone who has ever debated economic forecasting with me undoubtedly knows that I am, in general, a sworn skeptic.
I just don’t think that economic forecasting can be done.
In my opinion, the sheer number of known and unknown variables makes a mockery of the whole exercise.
However, I do think that an investor can successfully use demographics as a long-term forecasting tool simply because it can provide a peek into the future.
Let’s take the baby boomers for example.
Since they are all about the same age, they all tend to consume—or stop consuming—the same products or services, at about the same time.
So far, it’s been similar to a cattle stampede.
Their sheer numbers have distorted almost every market that you can think of.
When they all try to buy something at the same time, prices ‘boom’ and go up.
When they all try to sell something at the same time, prices ‘bust’ and go down.
One question that I get asked quite often is: “What do you think will happen to the housing market?”
I have looked in my crystal ball and I boldly predict that the boomers will get older.
Here are just a few boomer housing trends that I am currently contemplating.
First, the bulk of the baby boomers have now passed through their large family home buying years.
Therefore, the market will soften simply because there is fewer post-boomers available to buy them.
Second, I think that baby boomers’ tastes and needs have changed.
Boomers are interested in downsizing simply because their children are now grown. They don’t want to mow all that grass and clean all those bathrooms.
In my opinion, the third issue concerns the costs associated with the future medical care for baby boomers.
The boomers have caused sudden and extreme price increases in everything that they have bought so far, why would anyone think that the cost of health care would be any different?
So, who will pay?
I consider it absolute fantasy to think that society is somehow going to be able to increasingly tax fewer and fewer working people, who have the least resources, so that society can pay more and more to the boomers for health care and retirement.
I think the boomers will have to pay. The problem is that if the unprepared boomers don’t have the current income to pay their bills, they will have to divest some of their assets.
Since housing is one of a boomer’s most significant assets, I would expect that many will have to downsize in order to cover these under estimated expenses.
Are these the only factors? I very much doubt it. You’ll have to do more homework.
But my point is that you can use demographics to help avoid getting fiscally trampled by the baby boomer stampede.