Wednesday, November 17, 2010

Using Demographics to invest

I find it fascinating to look at the demographics of a nation or of a particular city.  The census growth of Canada over the past 70 years is pretty interesting - click here to see the table.


Demographics can help us with our investment ideals as well.  People do generally the same things, at the same ages.  Most people select a mate between 18 and 35, so expenditures on clothing and grooming products are at their highest in those years.  Young males between 16 and 25 tend to be the biggest buyers of motor cycles.  Over 55 people, without children, tend to be the #1 buying segment for condominiums.  What age buys family homes?  What will happen to that market?


Understanding demographics will help investors to be able to plan and understand where the new trends are in investing.  Knowing the relative age of the population in the coming decade can help shade you in the correct direction.


I am going to use the following rough guidelines for talking about different age demographics. 


BABY BOOMER - 1941 to 1966
GENERATION X - 1966 to 1986
GENERATION Y - 1966 to 2001


The baby boom generation is aged 44 to 69.  They are the largest generation comprising 8,460,000 people.
Generation X is aged 24 to 44.  They are the smallest generation of only 6,134,000
Generation Y is aged 0 to 24, with a total number of people being 7,793,000


As you can see the massive baby boom generation is going to exit the work force in major numbers over the next decade.  Estimate have it that in North America, a baby boomer retires every 8 seconds.  This causes a major effect on the work force. 


The Generation X, often referred to as slackers, cannot match the Baby Boomers due to sheer number.  There are 2,326,000 less Generation X members than Baby Boomers.  This is a decline of over 27% from one generation to the next.


The positive news, is that Generation Y, the Echo Boomers (children of baby boomers) are a huge generation as well.  They are 1,659,000 people larger than the Generation X before them.  That is an increase of 27% in size. 


In the case of demographic research, size does matter!  It is important to get out in front of the largest segments.  Marketers look like geniuses by positioning their clients in front of the wave, as opposed to behind it.  Investors should as well study the demographic waves that are hitting the real estate market.


For instance, if sporty cars are the bought mostly by young male demographic of 16 to 30, a car manufactor with hot styles and high performance automobiles will do really well in the coming 20 years as there will be 27% more buyers in their demographic.  Whereas, if you are marketing expensive furniture, you will see a decline in your market for the coming decade and a half as the much smaller Generation X enters the expensive furniture buying age.




1940s
1940 - 11,382,000
1941 - 11,507,000
1942 - 11,654,000
1943 - 11,795,000
1944 - 11,946,000
1945 - 12,072,000
1946 - 12,292,000
1947 - 12,551,000
1948 - 12,823,000
1949 - 13,447,000



1950s
1950 - 13,712,000
1951 - 14,009,000
1952 - 14,459,000
1953 - 14,845,000
1954 - 15,287,000
1955 - 15,698,000
1956 - 16,081,000
1957 - 16,610,000
1958 - 17,080,000
1959 - 17,483,000



1960s
1960 - 17,870,000
1961 - 18,239,000
1962 - 18,583,000
1963 - 18,931,000
1964 - 19,291,000
1965 - 19,644,000
1966 - 19,967,000
1967 - 20,500,000
1968 - 20,701,000
1969 - 21,001,000



1970s
1970 - 21,297,000
1971 - 21,963,000
1972 - 22,219,000
1973 - 22,494,000
1974 - 22,809,000
1975 - 23,143,000
1976 - 23,449,000
1977 - 23,727,000
1978 - 23,964,000
1979 - 24,203,000



1980s
1980 - 24,517,000
1981 - 24,821,000
1982 - 25,118,000
1983 - 25,367,000
1984 - 25,608,000
1985 - 25,843,000
1986 - 26,101,000
1987 - 26,449,000
1988 - 26,798,000
1989 - 27,056,000



1990s
1990 - 27,512,000
1991 - 27,945,000
1992 - 28,377,000
1993 - 28,682,000
1994 - 28,997,000
1995 - 29,303,000
1996 - 29,611,000
1997 - 29,965,000
1998 - 30,158,000
1999 - 30,404,000



2000s
2000 - 30,689,000
2001 - 31,021,000
2002 - 31,373,000
2003 - 31,676,000
2004 - 32,048,000
2005 - 32,359,000
2006 - 32,723,000
2007 - 33,115,000
2008 - 33,506,000
2009 - 33,894,000


Real estate implications make the forecast for the next decade more logical.  As we have an abundance of Baby Boomers, they are likely to be buying downtown condominiums, bungalows on acreage and vacation properties in the South.


Generation X is a smaller generation, they are not going to be able to pick up the slack from the Baby Boomers who are downsizing.  There is a good chance that many Baby Boomers will want to/be forced to, sell their homes to their children, the very large Generation Y. 

Immigration will play a part as well in helping Generation X take over the homes from the Baby Boomers.  Remember there are 2,326,000 less Gen Xers than Baby Boomers. 



Generation Y is an interesting group.  Their first home is likely a condo, as they are not interested in a lot of maintenance and upkeep.  Since jobs will be more scarce for the Generation Y, they are likely to put off children of their own into later years (early 30s), so the condo market should stay strong longer term, as the front end of Gen Y is only 24.


There also is a high chance Gen Y will rent a bit longer until they are firmly established in having a career, this will create many happy returns for property owners.  Less jobs, more competition and wanting a lifestyle of living in the right neighbourhood with little to no maintenance is a recipe for lots of renters. 


An area I do not see growth in, is the retirement homes.  Baby Boomers are generally speaking vain and will try to stay "young" as long as possible.  They will avoid the retirement home as long as possible, so with the next decade, front end baby boomers will be reaching 75, I think that retirement home investment is at least a decade to a decade and a half too early.


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