Tracking Demographic Trends Can Be a
Look Into the Future

Unlocking the Future by Understanding Today’s Demographic Trends.

The word “demographics” gets bandied about quite a lot these days. Commentators never tire of discussing how demographic trends – the change in behavior among different population groups – will alter the political landscape. Millennials – those born in the early 1990’s through the early 2000’s – garner the most attention of late.

Business too throws the term demographics around quite a bit. Often, companies will launch a new product that is supposed to address demographic changes among their customer base.

Real estate developers and brokers also keep a close eye on demographic trends. And for good reason. There’s nothing worse than building a bunch of homes for first time home buyers – those Millennials again – only to have them sit empty because they do not appeal to this new demographic/population group.

Knowledge of demographics is, for most people, surface deep, at best. Few have a good appreciation of what demographics are, and how they play a titanic role in for the future of pretty much everything.

Put simply, demographics are statistical data relating to population groups. Specifically, it is the examination of people of a certain age, race, gender, income, location and education level. For example, Baby Boomers represent a specific demographic group of those who were born from 1946 through 1965.

Besides their birth dates, Baby Boomers possess similar characteristics that are very different, for example, from the demographic group that preceded them; the so-called Silent Generation. Boomers attained higher levels of education, are healthier, buy different things and have a very different outlook on life. Among other things, they launched the so-called “counterculture” where anti-establishment behavior, free love and loud rock and roll music became one of their signature achievements.

But who cares?

Whether it’s politics, business or whatever, having a firm understanding of demographics is critical to success. Without knowing the unique characteristics of specific groups – where they like to spend their time, their money and what they really value – is a like a blindfolded person throwing darts at a dartboard. Success is low and its pure luck if you hit the target.

Demographic data science has grown greatly in stature. It has become so important to political consultants, marketers and just about every type of business, vast resources are now devoted to gathering and analyzing demographic trends. This data is used not just to better understand a particular group, it is also instrumental in “market segmentation”.

A good example of demographic market segmentation can be found in real estate. Today, over 62% of all Americans own their own home. However, not all homeowners are alike. The homeowner market can be divided – or segmented – into various, unique groups. These include first time home buyers, empty nesters, or those buying homes to accommodate growing families. Each one of these groups have their own, unique demographic profile, one that real estate developers and brokers need to know if they are going to successfully sell them the homes.

For example, the demographic profile of first time home buyers is very different than other home buying populations. They tend to be younger, less financially secure, have smaller families and often carry with them heavy student loan obligations. The more educated of this group tend to   prefer living in high density, urban environments. These Millennials are very different from their Silent Generation predecessors.

But are they?

A recent study by Standard and Poor’s revealed that the two demographic groups share some important similarities in outlook, behavior and purchasing preferences, despite being separated by two generations.

At first glance, Millennials and the Silent Generation, couldn’t be more different. This first of the Silent Generation were born in the 1920’s while the first Millennials were born in the early 1990’s. One got their information from newspapers and radios, the other from digital media. The differences seem incompatible.

Yet, on closer examination, the two have some strikingly similar habits. Both are more likely to hold large amounts of cash – up to half their net worth in many cases – only 15% in fixed-income assets, and less than one third in stocks.

The reasons for this may be that both entered adulthood during financial crises. Both suffered from stagnated wage growth. Couple that will the staggering student loan burden that Millennials have, and there is little wonder that these two demographic groups – so different, yet so much alike – share many conservative financial views.

People of a certain age can recall when the Cadillac brand stood for luxury, prestige and refinement; the pinnacle of automobile status. Titans of industry, movie stars and presidents would only be driven in America’s premium automobile –the Cadillac.

Demographics – or, rather, ignoring them – killed the Cadillac brand. It went from the king of the cars, to the mish-mash it is today.

Until recently, the demographic composition of the Cadillac buyer never changed. It was composed of upwardly mobile, affluent professionals born before the Baby Boomers. And that was the problem.  As this group aged, the marketing geniuses at Cadillac were afraid to change anything that might alienate this important demographic group.

Sadly, by the early 2000’s, Cadillac sedans plying the road often looked like driverless automobiles. This was because they were driven almost exclusively by the very elderly, many of whom, due to their advanced age, could barely see over the steering wheel. As this demographic group died off, so too did the Cadillac brand. Today, they are trying mightily to regain their former premium position in the auto market, but, to no avail. Mercedes and Lexus now occupy it.

It wasn’t that the demographic composition of Cadillac buyers changed. It didn’t. What changed was the demographic profile of luxury car buyers. And Cadillac failed to adapt to this new buyer demographic. Had the management at Cadillac done a deep drive into the emerging demographic trends of the U.S. luxury car market, they would have seen that the next generation of buyers were very different. They could have seen what future luxury car buyers looked like, valued in a car and they could have acted accordingly. They had an opportunity to look into the future, and they blew it.

Changing demographics among renters is helping real estate investors more efficiently allocate their funds to achieve a better return on investment.

When thinking of renters, most people imagine they tend to be on the younger, less affluent side. As the story goes, when families become more affluent, and their families grow, they stop being renters and buy a home. This is, after all, the American Dream. Moreover, it’s been an accepted notion for generations. Buying a home is a very good investment.

However, a recent study by a noted mortgage and finance company uncovered some startling news. Millennials, like their predecessors, used to believe that buying a home was a good investment. In fact, 77% of those surveyed believed this. However, a more recent poll among this group showed that things had dramatically changed. Only 48% of Millennials now believed buying a home was a good investment. That’s almost a 30% drop.

The reasons for this titanic shift are many. Millennials are burdened with unprecedented student loans, making home buying difficult. Moreover, they are having fewer children than previous generations. Marriages are happening later too.

Couple this with a demographic analysis by RentCafe, an online rental portal, which showed that people over 60 years old are the fastest growing demographic segment of renters, and its easy to see why many real estate investors and developers are using this demographic trend data to shift funds away from home building into rental properties.

Ignore demographic trends at your own peril. Demographic trends analysis is the safest way to try to predict the future needs and wants of consumers.