Matt King’s Sobering Chart Demonstrates Demographic Challenges Ahead

By on December 10, 2012

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:

dependency ratio housing price chart

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

2 Comments

  1. Peter

    January 7, 2013 at 6:21 am

    Hello Matt, I am very much impressed by your annotation…. Thanks for amazing information . Regards.

  2. Jonas

    January 26, 2014 at 11:24 am

    Steve Hansen has posted an interesting article regarding demographic influences at Seeking Alpha (the comments are also worth reading):

    http://seekingalpha.com/article/1967641-demographics-is-not-a-big-deal?source=google_news

    In sum, Hansen largely discounts the idea that economic growth will be impeded with the aging population in the U. S., as popularized by economist and author Harry Dent.

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