Though consumer spending has been surging in today's strong economy, bankers should take note that the long-term trend will almost certainly go the other way.

A decline already is under way in the growth rate in the number of first-time homeowners. Federal Reserve Chairman Alan Greenspan warned last week that household formation "is likely to be flat at best, with very little upside potential."

That would mean a decline in home building -- and because this activity is a major stimulus to the economy, a general economic decline.

And it also would mean lower housing prices, or at least a slower rise, which would reduce capital gains as people sold their property.

Mr. Greenspan focused on this aspect of demographic trends, which is an extension of his concern about the possibility that stocks are overvalued. He argued that part of the exuberant spending by consumers reflects the fact that people feel wealthy because of the sharply rising values of their homes and stock portfolios, the so-called wealth effect. As the housing industry slows, the wealth effect will decline -- and so will consumer spending.

"There is an almost perfect correlation between the rate of household formation and changes in housing prices after inflation," said Sung Won Sohn, chief economist at Wells Fargo & Co. "Household formation drives real house prices.

"The implication is that while we don't have to worry about housing prices falling 20% or 30% like the stock market, the rate of increase in house prices is certainly going to slow in the future," he said.

Still, housing market values will probably remain a financial bulwark for many consumers. Real declines in home values have been rare in the postwar era.

Mr. Greenspan noted that "the average nine-year period of ownership brings a substantial increase in market values even when the average annual increase has been modest."

Right now, mortgage borrowing capacity is high, thanks to average annual 4% to 5% gains in home values over the past four years, according to Gary Gordon, consumer finance analyst at PaineWebber Inc. in New York.

Thus through refinancing that enables homeowners to tap into increased equity, mortgage debt can be expected to grow as a share of total consumer credit, he said.

Nevertheless, overall consumer debt will slow as demand for housing tapers off.

"The overwhelming demographic fact of the next decade is the move of the baby boomers into later middle age," Mr. Gordon said. The number of people 45 to 64 years old will grow dramatically, while the number 35 to will shrink, and the number 25 to 34 -- the category in which most household formation occur -- will remain flat.

Mr. Greenspan, speaking in Washington before America's Community Bankers, the trade group, urged mortgage lenders to continue to push for innovations that will streamline the mortgage process and lower the cost of home finance. Doing so would bring more buyers into the market to offset the expected decline, he said.

The Fed chief noted that homeownership among 25-to-29-year-olds has risen to 36%, from a recent low of 33%, but is still considerably below the 44% of 30 years ago, leaving obvious room for improvement.

The key factor for lenders, however, is that the number of people in their primary borrowing years -- age 25 to 44 -- will actually be shrinking.

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