The boomers’ and busters’ influence on the housing market has never been easy to predict. In 1989, economists Greg Mankiw and David Weil, then both at Harvard University, took a stab at it. As the baby busters were entering the market, they wrote in a widely read paper that "housing demand will grow more slowly in the 1990s than in any time in the past 40 years . . . [and] housing prices will fall substantially over the next two decades." Wellesley College economist Karl Case jokingly calls this "one of the worst forecasts in the history of mankind." Anyone who’s read a newspaper in the past 20 years knows he’s only slightly exaggerating. The median price for a house in Boston dropped last year to $515,500, but compare that with 1990, when the median price was $159,000. There are two reasons Mankiw and Weil turned out to be so off-target, says Case. One is that immigrants took up some of the slack, adding to the population numbers, buying houses, and keeping the market healthy. The other is that the boomers weren’t quite dead yet. Mankiw and Weis didn’t foresee the trend of "trading up" that the generation would fuel, nor did they predict the group’s continuing enthusiasm for second and third homes. Ultimately, the baby boomers were such active real estate buyers that they sent prices spiraling up, not down. "Mankiw and Weil missed something that demographers are really sensitive to," says Dowell Myers, a demographer at the University of Southern California in Los Angeles and the author of the new book Immigrants and Boomers: Forging a New Social Contract for the Future of America. "It’s a classic mistake."
3 comments:
You can't really blame someone who is consistently unfamiliar with the way all types of business work for making poor predictions concerning how business is going to work over an extended period of time.
In fact, I think these type of people are generally referred to as "academic economists."
Just imagine what a full record of his predictions would probably look like.
Fast forward 20 years. Mankiw could not predict that boomers would dealy retirement by 12+ years. Lending practices for the past 15 years that artificially inflated home prices have also delayed the prediction. Wealthy boomers will soon have two houses for sale to pay for losses in their retirement accounts. Which by the way, must start withdrawing at age 72, by law.
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