The Baby Boom, "Pent-Up" Demand, and Future House Prices*

Real house prices are forecast to rise over the next two decades by about the same amount they rose over the past two decades. The longer-run positive trends in real incomes and population size and the advance of the baby boom into ages of greater effective demand for houses are forecast to raise real house prices 10%. Simulation indicates that the demand for houses, and thus the prices of houses, may fall when baby boomers reach adulthood, because the effects of the larger population may be more than offset by the effects of the lower individual real incomes of young workers. As boomers age, their changing preferences and rising incomes raise simulated house prices above their initial levels. Simulated house prices remain above their initial levels until the baby boom generation has died off. © 1991 Academic Press, Inc.