Inconspicuous Consumption

American Demographics, April 1, 2002

The largest budget item for all Americans is housing, which represents about a third of all expenditure and rose almost 6 percent during the past decade. The reasons are twofold. Housing prices jumped 51 percent, to a median $138,400. At the same time, the portion of Americans who own their own homes increased to a record 67 percent in 2000, up from 64 percent in 1990. Among U.S. residents between ages 45 and 54, a whopping 77 percent are homeowners. "Baby Boomers have moved into their prime home-owning years," explains Lawrence Yun, a senior economist at the Washington, D.C.-based National Association of Realtors (NAR). "They have more of their wealth in housing than in stocks, bonds or financial instruments."

The 1990s also marked the first decade in which immigrants began owning homes in disproportionately high numbers. In the 35 years since Congress implemented legislation that increased immigration, the flow of immigrants has jumped from 50,000 annually, to about 1 million in 2000. The NAR reports that the longer immigrants live in this country, the greater their likelihood of becoming homeowners. In fact, those immigrants who have lived here for more than 30 years have a higher ownership rate than the general population.

Americans also spent money feathering their newly bought nests, directing 14 percent more of their budgets to maintenance, repairs and renovations between 1990 and 2000. "Boomers are into home remodeling" observes Yun. Still, it wasn't all kitchen cabinets and bathroom tiles. As the number of telecommuters tripled to 20 million people, according to the Washington, D.C.-based International Telework Association & Council, do-it-yourselfers looked to create suitable home offices. During the decade, the share of consumer spending on home office equipment, like faxes and computers, rose 36 percent, to $731 annually.

Ironically, this preoccupation with homeownership and renovation didn't translate to home furnishings. Americans spent 6 percent less on furniture between 1990 and 2000; those younger than age 25 dropped their outlays by 22 percent, to $270 - the equivalent of an Ikea chair. Given that researchers report a correlation between spending on furniture and home entertaining, Gen Y may prefer virtual online gatherings to in-the-flesh parties. As for those who still enjoy dinner parties, CEX stats seem to indicate that they're having them on old particleboard tables.

Looking ahead, analysts remain bullish about housing spending over the next decade, noting that Boomers are entering the highest home-owning age segment - 82 percent of Americans between ages 55 and 64 own homes. The rise in telecommuting and home buying among immigrants should further fuel an increase in the rate of homeownership, to 70 percent by 2010, from 67 percent in 2000. predicts NAR's Yun. As Boomers receive transfers of wealth from their parents, Yun forecasts increased spending on second homes and vacation cottages. In fact, while most of the stock market languished this winter, construction companies like Pulte, Ryland and NVR were posting yearly highs.