The Big Long? A Deep Dive on U.S. Housing (Part 2) — Part 2 - What’s Driving Demand?

Theme and Background

This chapter focuses on the demand-side drivers of the U.S. housing market, particularly population migration and demographic shifts among first-time homebuyers. The report points out that while the national housing stock appears adequate (142 million homes for 130 million households), geographic imbalances have led to severe localized shortages. The author argues that politicized restrictive policies during COVID-19 accelerated cross-state migration, while Millennials are simultaneously entering the prime first-time homebuying age. These two forces together have driven up housing demand and will continue to pressure supply in the coming years.

Core Thesis

The author's core investment thesis is: The structural shortage in the U.S. housing market is not a short-term phenomenon, but a long-term trend driven by population migration and the Millennial homebuying wave. Counterintuitive judgments include:

• The notion of an oversupplied national housing stock is misleading, as demand has shifted geographically, and localized shortages cannot be resolved through aggregate balance.
• The stringency of COVID-19 restriction policies is the most important factor explaining migration differences (50% explanatory power), even surpassing taxes and climate.
• First-time homebuyer demand is not dominated by financial decisions but by life events such as marriage. Currently, Millennials are entering marriage and their 30s in concentrated numbers, creating non-negligible incremental demand.

Key Arguments and Data

1. Correlation between Population Migration and Housing Shortages:

• The r-squared between job growth and housing shortages is 0.47 (i.e., 47% of shortages can be explained by job growth).
• Between July 2020 and June 2021, 60% of the decline in for-sale homes in the Top 50 MSAs can be explained by net migration flows.
• In Q1 2022, 32.3% of Redfin users were searching for homes across metropolitan areas, an all-time high.

2. Relationship between Political Restrictions and Migration:

• Among the 20 most populous states, the stringency of COVID restrictions explains 50% of the variation in domestic migration.
• The table below shows the top ten and bottom ten states for net migration, color-coded by the governor's party (the original text did not provide exact numbers, but the conclusion is clear):

Top Ten States for Net Migration	Bottom Ten States for Net Migration
Texas (Republican)	California (Democrat)
Florida (Republican)	New York (Democrat)
Arizona (Republican)	Illinois (Democrat)
North Carolina (Democrat)	New Jersey (Democrat)

South Carolina (Republican)	Massachusetts (Democrat)

3. Reversal of Trends in the Western Region:

• Year before COVID (July 2019 – June 2020): The Western region had net population inflow.
• Year after restrictions were implemented (June 2020 – July 2021): The Western region experienced net population outflow.

4. Millennial First-Time Homebuyer Demand:

• 4.7 million Millennials turned 30 in 2020, 4.8 million in 2021, and 4.8 million will turn 30 each year for the next three years.
• The median age of first-time homebuyers rose from the late 20s in 1980 to 33 in 2021.
• Age 30 is the key inflection point: the marriage rate for the 25-29 age group fell from 60% in the 1980s to 30%, but the rate for the 30-34 age group jumps to 50%, and for the 35-44 age group reaches 62%.
• Homeownership rates among married individuals are much higher than among singles: over 50% of married 25-29 year olds own homes, compared to only about 25% of singles.
• In 2022, the U.S. is expected to have more than 2.4 million weddings, the highest in 40 years.

• The author estimates: over the next three years, there will be approximately 740,000 incremental first-time homebuyer demands annually (from those turning 30).
• Zonda survey: 29% of non-homeowning Millennials plan to buy a home within 1-3 years, and 14% are actively buying. Among the 72 million Millennials nationwide, the homeownership rate is 43%, meaning over 5.7 million are actively purchasing homes, while the national inventory stands at only about 280,000 units.
• The Reddit subreddit r/FirstTimeHomeBuyer has seen subscriber growth of 11x since March 2020.

5. Single Women Homebuying Trends:

• 65% of single women say they are unwilling to wait until marriage to buy a home.
• The female homeownership rate rose from 50.9% in 1990 to 61.2% in 2019 (an increase of 10.3%).
• In the Top 50 MSAs, the number of homes owned by single women exceeds that owned by single men.

Companies/Assets Involved

• Redfin: Used as a data source, with its user search behavior (32.3% cross-metro searches) and platform trends cited, but the report does not make a bullish or bearish judgment on the company.
• Zonda: Provides survey data on Millennial homebuying intentions, also used solely as a data source.
• U.S. Census Bureau, Realtor.com, Wallethub.com: Used as data sources for population migration, housing inventory, and restriction policies.

Investment Implications

• Go long on homebuilders and building materials-related assets: The report argues that several million new homes need to be built each year for the foreseeable future to meet demand. The vast gap between current inventory (approximately 280,000 units) and potential buyers (5.7 million) will sustain growth in construction activity.
• Focus on real estate developers in population inflow states: Housing demand is more urgent in net migration inflow states such as Texas, Florida, and Arizona. Homebuilders in these regions may benefit the most.

• Be wary of housing market risks in population outflow states: States with net migration outflows such as California, New York, and Illinois may face demand contraction, though the report does not explicitly recommend shorting.
• Structural support from first-time homebuyer demand: The Millennial marriage wave and age structure changes provide stable demand for the next 3-5 years. Investors should monitor mortgage lenders, home improvement, and real estate services companies tied to first-time homebuyers.

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Theme and Background

This chapter focuses on the structural demand-side drivers of the U.S. housing market, particularly demographic shifts (e.g., young adults leaving home to live independently, household formation among core age groups) as well as the ongoing support from investor and vacation-home buying activity. The report argues that the current market is not a speculative bubble but rather the result of a chronic supply shortage colliding with robust demographic demand.

Core Views

• Young adults moving out of their parents' homes will become a key source of new housing demand in the coming years: Among the 25–29 age group, approximately 24% (roughly 5.5 million people) still live with their parents, far above the ~15% level seen from the 1980s through the early 2000s. If this share reverts to the historical average, it could generate millions of new household formations.
• The 34–44 age group, the "peak household formation" cohort, will continue to grow through 2030, providing a solid "demographic demand floor" for housing. This contrasts sharply with the period before the 2007 subprime crisis, when this age cohort was declining while construction was elevated.
• Investors (especially small-scale investors) and vacation-home buyers are absorbing listings that would otherwise go to owner-occupants, exacerbating supply tightness. Small investors (owning fewer than 10 properties) accounted for 27% of all home purchases in January 2022, and the total investor share (33%) was 5 percentage points above the trailing 10-year average.
• Contrarian view: The report believes that comparing the current market to the 2007/2008 housing crash is "sensationalist," because the current demand base is driven by demographics, not speculative froth.

Key Arguments and Data

1. Changes in the share of young adults living with parents

Indicator	1980s–Early 2000s	Current (2022)
Share of 25–29 year-olds living with parents	~15%	~24%
Corresponding number of people	—	~5.5 million
Share of 25–29 year-old men living with relatives (not parents)	—	~11% (~2.5 million)

Share of 25–29 year-old women living with relatives (not parents)	—	~15% (~3.4 million)
Share of 30–34 year-olds living with parents	—	<14% (down from 24%)

2. Comparison of key household formation age groups

Age Group	Marriage Rate	Homeownership Rate
25–34	50%	67%

34–44 (peak)	60%	77%

3. Investor and vacation-home demand

Buyer Type	Share of Home Purchases (Jan 2022)	Notes
Small investors (<10 properties)	27%	5 pp above trailing 10-year average
Large investors (≥10 properties)	6%	Institutional investors own only ~2% of single-family rentals nationwide
Owner-occupants	67%	—
Vacation-home buyers (Mar 2022)	Still 13% above pre-pandemic level	Early 2021 had surged 87% vs. 2019; >50% all-cash purchases

4. Supply gap estimation

• The report makes (conservative) assumptions:
• Current marriage and homeownership trends by age group persist;
• No demolitions considered (historically 250k–350k per year);
• No immigration demand considered;
• Housing vacancy rate stabilizes at ~8% (7.7%–9.3% in 2015–2021);
• Demand from people under 30 is ignored.
• Conclusion: 5.6 million single-family homes need to be built from 2022–2025, or 1.4 million per year on average. Current construction has only returned to historical average levels, while key demographic cohorts continue to grow.

Companies/Assets Covered

• Blackstone: Mentioned as a representative institutional investor, but the report notes it owns only a small share (~2%) of single-family rentals nationwide and is not a dominant market force.
• Redfin: Data source showing that vacation-home demand remains above pre-pandemic levels.
• John Burns Consulting: Provides data on investor purchase shares.
• Tricon Residential: Cited as a case of an institutional investor (2022 investor presentation).
• Realtor.com: Data source.
• Signet Jewelers: Data source (likely related to marriage rate data).

Investment Implications

• Bullish on homebuilders and building-materials-related companies: The report explicitly quantifies a need for 1.4 million single-family homes per year over the next four years, arguing that current building levels can only maintain supply-demand balance, not make up for the underbuilding of the past decade. Any policy or market action that accelerates construction or sustains the current pace will benefit builders.
• Beware of "housing crash" narratives: The report argues that a demographic demand floor will prevent a price collapse, especially compared to 2007, when the key 34–44 cohort was shrinking, whereas it is now growing. Investors should avoid shorting the housing market or making excessive bets on price corrections.
• Pay attention to the ongoing inventory squeeze from small investors and vacation-home buyers: These buyers are less rate-sensitive (vacation homes >50% all-cash), and the younger generation's enthusiasm for "passive income" (Reddit r/RealEstateInvesting subscriptions grew 8x to 1.3 million since January 2021) may continue to reduce the supply of homes available to owner-occupants, further supporting prices.