Matt King’s Sobering Chart Demonstrates Demographic Challenges Ahead
Matt King, Citigroup’s Global Head of Credit Strategy, has created what he refers to as, “the most depressing slide I’ve ever created.” The slide shows the correlation between the dependency ratio (the proportion of population of working age relative to old and young) and real estate prices in six countries (including the U.S.).
King told Business Insider:
In the past, we all levered up, bought a big house, enjoyed capital gains tax-free, lived in the thing, and then, when the kids grew up and left home, we sold it to someone in our children’s generation. Unfortunately, that doesn’t work so well when there start to be more pensioners than workers.
The chart below (King’s slide) shows the dependency ratio as the dark blue line and real estate prices in light blue:
SMA Comment: King’s slide does raise eyebrows for those investing in housing. However, there are other factors at play here. The U. S. has net immigration of approximately 1 million per year, while Japan has shown net losses in population. This should put a floor under the U. S. housing market at some point in the not too distant future. A chart showing the correlation between the dependency ratio and stock prices would also be enlightening. It would probably show a similar correlation as Japan’s stock market is a small fraction of what it was 23 years ago. This would indicate stock market investors will need to be on their toes in the years to come. Buy and forget might be a relic of the period 1982-1999.
Source: Business Insider