The 2007 subprime mortgage crisis that devastated the housing market was exacerbated by a shrinking number of potential home buyers. The crisis roughly coincided with the prime home-buying age group (defined as those 25 to 40) transitioning from what was then the largest demographic cohort—Baby Boomers—to the considerably smaller Generation X cohort.

The first chart shows that the size of the home-buying pool, as a percentage of the overall working population, has recently shifted again, with Millennials—another large cohort—helping to lift that ratio from around 2015 onward.

“The COVID-19 pandemic put a spotlight on the surge in housing demand, but a demographic shift has been quietly influencing the market for a number of years,” Hirt said. “This will continue to be a positive market influence for much of this decade.”

For several years following the subprime mortgage crisis, homeownership and attitudes toward buying a home declined significantly.

“Those downturns may have been related to how potential home buyers saw their friends or parents affected by the crisis, or how the recession brought on by the crisis impacted their ability to finance the purchase of a home,” said Ian Kresnak, a Vanguard investment strategist. “Whatever the cause, the share of the population interested in homeownership fell to about 2%—well below the average of 3.5% for the four decades ended in 2018, according to the Conference Board’s Consumer Confidence Survey.”

More recently, that sentiment has surged, the survey shows: About 6% of respondents now report they are considering buying a home in the coming six months. “Sentiment indicators can be circumstantial,” Hirt said, “but we find it currently to be a representative measure of the attitude shift, and it correlates well with increased demand and rising homeownership rates in the U.S.”

Not only is the pool of potential home buyers expanding, but also a much larger share of that pool is keen on purchasing a home soon.

These favorable demographics—along with an undersupply of homes and strong borrower fundamentals—should put housing on the path to becoming an economic stabilizer, with negative contributions to GDP since mid-2021 turning positive by 2024.

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