The Generational Housing Market

[Tommy The Cat]

Problem: The 78 million baby boomers have driven up housing demand and prices for three decades since beginning to buy homes in 1970 and continuing up the housing ladder. What will happen when boomers begin to sell off their high-priced homes to relatively smaller and less-advantaged generations?

 

Results and conclusions: Sellers of existing homes provide 85% of the annual supply of homes sold, and home sales are driven by the aging of the population since seniors are net home sellers (a net home seller does not make a purchase of a home with the proceeds from the sale). The ratio of seniors to working-age residents will increase by 67% over the next two decades; thus we anticipate the end of a generational housing bubble. We also find that younger generations face an affordability barrier created by the recent housing price boom (i.e. an escalation in prices that has exceeded income).

 

City planners and housing authorities are seeing study after study that there is coming generational transition in the housing market that will upset the historic balance of buyers and sellers. Residents in most states are net buyers of homes well into their 50s. The resulting upward pressure on demand by the large baby boom generation will soon peak, and after age 70 they will be net sellers in all except three states.The baby boomers will finally start retiring from the housing market. Their demand for housing will begin to contract, and then will decline at an accelerating rate. Boomers will dominate the housing market, as they have through their entire adult lives, when the ratio of seniors to working-age adults soars by 67% in the next two decades (2010-2030). This tilt toward age groups that are Sellers of housing is historically unprecedented. The baby boom generation was born over a period of 18 years 1970-1990, and once its sell-off commences, it could dominate the housing market for up to two decades.

 

 

Home buyers and house owners must adjust their thinking for a new era that reverses many longstanding assumptions. Whereas decline once occurred in the central city, it may now be concentrated in suburbs with surpluses of large-lot single-family housing. Whereas the major housing problem was once affordability, it could now be homeowners' dashed expectations after lifelong investment in home equity. All of these reversals result from the aging of the baby boomers.

 

 

 

[LBCS]

Problem: The 78 million baby boomers have driven up housing demand and prices for three decades since beginning to buy homes in 1970 and continuing up the housing ladder. What will happen when boomers begin to sell off their high-priced homes to relatively smaller and less-advantaged generations?

 

Results and conclusions: Sellers of existing homes provide 85% of the annual supply of homes sold, and home sales are driven by the aging of the population since seniors are net home sellers (a net home seller does not make a purchase of a home with the proceeds from the sale). The ratio of seniors to working-age residents will increase by 67% over the next two decades; thus we anticipate the end of a generational housing bubble. We also find that younger generations face an affordability barrier created by the recent housing price boom (i.e. an escalation in prices that has exceeded income).

 

City planners and housing authorities are seeing study after study that there is coming generational transition in the housing market that will upset the historic balance of buyers and sellers. Residents in most states are net buyers of homes well into their 50s. The resulting upward pressure on demand by the large baby boom generation will soon peak, and after age 70 they will be net sellers in all except three states.The baby boomers will finally start retiring from the housing market. Their demand for housing will begin to contract, and then will decline at an accelerating rate. Boomers will dominate the housing market, as they have through their entire adult lives, when the ratio of seniors to working-age adults soars by 67% in the next two decades (2010-2030). This tilt toward age groups that are Sellers of housing is historically unprecedented. The baby boom generation was born over a period of 18 years 1970-1990, and once its sell-off commences, it could dominate the housing market for up to two decades.

 

 

Home buyers and house owners must adjust their thinking for a new era that reverses many longstanding assumptions. Whereas decline once occurred in the central city, it may now be concentrated in suburbs with surpluses of large-lot single-family housing. Whereas the major housing problem was once affordability, it could now be homeowners' dashed expectations after lifelong investment in home equity. All of these reversals result from the aging of the baby boomers.

 

 

 

 

Source?

[Tommy The Cat]

[source?

Several but primarily

 

Source

[LBCS]

[source?

Several but primarily

 

Source

 

Thanks, excellent paper.

[cedski]

What this article does not take into consideration is that many of the baby boomers took a beating in the market over the last couple of years and may not be as eager to sell a home which has lost value and then try and fund a retirement out of a devastated 401k. I wouldn't put much faith in this paper because of those simple facts.

[masonquint]

Hi Tommy The Cat

 

I'm a huge fan of contrarian thinking, do you see opportunity in these trends? Reverse mortgages may benefit tremendously? For investors with long term goals this could be an opportunity of a lifetime.

 

Thanks for your "thinking outside the box" post. I will look for other posts you have made

[Athena53]

I'm almost 58 and this is something I worry about with my generation. DH and I are in a McMansion and he's 72 with a bit of a balance problem that means he has to be particularly careful on steps. While we can afford the heating and maintenance, I can see the day coming when we decide we want something all on one floor. We'll probab;y decide that at the same time as half our contemporaries. Implications for investors:

 

1. Seniors who sell gotta go somewhere if they're still living. Smaller homes and continuing care communities could become more popular. The latter suffered in the last downturn, though- people who had planned on getting $XXX,000 for their house so they could make the move to the retirement community found that they couldn't get that much, so they decided to stay in the house and wait it out. Retirement communities got fewer new entrants,

 

2. Which brings me to the next principle- do NOT have a retirement plan that depends on your raking off a giant capital gain on your current house. It might happen but it might not- and you'll still need at least some of the proceeds to cover housing costs elsewhere.

 

3. Reverse mortgages scare the heck out of me. You're assuming (as an investor in reverse mortgages) that the house will be worth enough when it's sold to recoup your investment. People can live longer than average (you have to guess that healthier people are more likely to choose this option) and if the money they get isn't enough to cover maintenance, the resale value could suffer considerably. If the housing market tanks, it all becomes even worse.

 

4. Think about actually paying off a mortgage as you near retirement. We took out a 15-year in 2003, so it will be paid off when I'm 65 if we're still here. It takes a lot of financial pressure off if you have significant equity in the house and can lower the price if you have to.

[snowpuppy]

I'm in the early stages of thinking about retirement, I can tell you that if you have children it can be wise to hold onto that larger home in later years.

 

There's a not so funny joke where I live of the 'family compound' meaning families who have doubled up as their children have lost jobs, can't find another or where parents are caring for grandchildren to ease the burden of childcare. My own DS moved home for 18 months after graduating college because he couldn't find work. He did the 'take anything' job for a few months but it wouldn't cover his rent and it was silly to spend savings when he could move home for dirt cheap. It did fray the nerves for a time and he eventually found a full time job but he is a contractor. Meaning he could be home again at any time.

 

One of my co workers has extended family living in a rental house on their property. His SIL lost his job because of health issues and his DD cannot support the family one her income alone. His DW watches the small ones when they get off the school bus until mom comes home from work as his SIL cannot care for them for even short periods of time.

 

When I was a kid, we lived with extended family. Grandma, grandpa and us all under one roof. Somewhat like the Walton's, just not as hospitable.

[delzer]

What this article does not take into consideration is that many of the baby boomers took a beating in the market over the last couple of years and may not be as eager to sell a home which has lost value and then try and fund a retirement out of a devastated 401k. I wouldn't put much faith in this paper because of those simple facts.

Completely agree and that is happening. Many of us will not sale now and I know many who have decided not to sale directly relating to your point.

[Tommy The Cat]

What this article does not take into consideration is that many of the baby boomers took a beating in the market over the last couple of years and may not be as eager to sell a home which has lost value and then try and fund a retirement out of a devastated 401k. I wouldn't put much faith in this paper because of those simple facts.

This paper is well researched, includes over 50 references and one of the authors is

 

Dowell Meyers, Ph.D

 

You wouldn't put much faith in him? Did you read the paper?

[Tommy The Cat]

Hi Tommy The Cat

 

I'm a huge fan of contrarian thinking, do you see opportunity in these trends?

Opportunities are still limited, if you are talking about the present. IMO, if you can buy housing that can be leased where the rent payments cover all or the great part of debt, maintenance, taxes and other expenses of Lessor ownership, having your investment to be your downpayment (equity), this makes sense. In most cases, if a home can be bought where these parameters can be met, then you have purchased at the right price.

 

Dr. Meyers is pointing out in a very lengthy and detailed way that the run-up in housing prices was a contrived one. That this trend will end as the Baby Boomer era comes to its close.

 

We live in an aging society where there are more and more seniors and (by ratio) less and less replacement (younger) buyers. This means a swelling of inventories, supply exceeding demand substantially.

 

"Once past the tipping point, market adjustments will cascade in virtually every community, as the ratio of seniors to working age adults will increase for the greater part of two decades."

 

The translation of this statement is that what goes up must come down since the market driven upswing in housing prices was a function of the reverse situation. More young buyers (Baby Boom) and fewer senior net sellers.

 

Reverse mortgages may benefit tremendously? For investors with long term goals this could be an opportunity of a lifetime.

The key to your statement is long term goals and I would agree.

 

Thanks for your "thinking outside the box" post. I will look for other posts you have made

Welcome but it's funny that you would use the terms "outside the box". City planners, real estate researchers and others who have no choice but to deal with the statistical evidence have been reporting this swing in the housing market for years now. I believe that this irrefutable shift in population patterns is very much inside the box. The problem is that your local Realtor, financial advisers, mortgage brokers, news supplier and other daily sources who report on real estate ignore these realities. If they ever cared to look outside their own boxes in the first place.

 

Truth many times is neither fun, conducive to business nor good print. It's uncomfortable and unsettling to have to adjust to the dawning age but the dawning age doesn't care one bit about anything except the truth.

[Tommy The Cat]

Athena53, there is nothing more than I can say except

[Athena53]

[/i]We live in an aging society where there are more and more seniors and (by ratio) less and less replacement (younger) buyers. This means a swelling of inventories, supply exceeding demand substantially.

 

"Once past the tipping point, market adjustments will cascade in virtually every community, as the ratio of seniors to working age adults will increase for the greater part of two decades."

 

 

Already in many communities it's hard to get new taxes passed for the schools. Partly a result of the recession, of course- no one wants more taxes when they're feeling stretched thin financially- but partly people with no kids in the school system. I try to take a balanced view of school taxes (good schools do support RE values), but am reluctant to vote for more taxes when they seem to go to increased bureaucracy and what I perceive as frills (photo darkrooms, kilns, expensive performing arts programs).

[radi8]

Already in many communities it's hard to get new taxes passed for the schools. Partly a result of the recession, of course- no one wants more taxes when they're feeling stretched thin financially- but partly people with no kids in the school system. I try to take a balanced view of school taxes (good schools do support RE values), but am reluctant to vote for more taxes when they seem to go to increased bureaucracy and what I perceive as frills (photo darkrooms, kilns, expensive performing arts programs).

 

Around here they are closing schools and consolidating facilities because the number of school-age children is slowly dwindling. Yet they still want to exceed their property tax caps.

They don't see the fallacy of refurbishing tracks and fieldhouses at schools slated for closing in 18 months.

Nobody minds supporting education IMO, it's the blatant waste and bloat that is irksome.

 

Tommycat: TY for the interesting article. It's something I just really hadn't considered, but it seems obviously correct.

Appears there is a very long road ahead before housing prices really stabilize again.

[Tommy The Cat]

Tommycat: TY for the interesting article. It's something I just really hadn't considered, but it seems obviously correct.

Appears there is a very long road ahead before housing prices really stabilize again.

Not only a long one but a very uncertain one. We are cutting new ground here and since much of the mess we are in was contrived...

 

Non Political Report On Financial Fraud

 

...it appears that no one really knows how to undue the damage that has been done. Or when it can be undone. Or if it can be undone.

 

Think about this problem. We have a statistically undeniable swing to an oversupply of housing by the Generational Housing Market fact finding. We have a mortgage and banking financial system that seriously needs reworking. Foreclosures are continuing to flood the supply side equation.

 

<insert any additional related issues as you please>

 

Here we are in 2011 and not only are we no nearer to a resolution of any of our problems, we have more and potentially greater problems ahead.

 

Another five years, imo, at least. 10? 15?

 

You're talking to a Cat who told RE agents and brokers in 2005 that it would be until 2011 that things would flush out. Paint me pessimistic...and dead wrong.

[luckydriver]

 

Already in many communities it's hard to get new taxes passed for the schools. Partly a result of the recession, of course- no one wants more taxes when they're feeling stretched thin financially- but partly people with no kids in the school system. I try to take a balanced view of school taxes (good schools do support RE values), but am reluctant to vote for more taxes when they seem to go to increased bureaucracy and what I perceive as frills (photo darkrooms, kilns, expensive performing arts programs).

 

what state do you live in that you get to choose? in PA all the boards dictate high increases every year and we cant do a thing about them building new schools when they really arent needed. Or fancy fields with artificial turf that just kills for medical expenses. people have tried submitting plans where there are only X different plans for new schools and you just choose one but instead they get high priced 'options' and we have no choice to pay for their custom designs which are totally unnecessary.

 

id rather you double my income and sales tax than base what you charge me on the size of my house. it's more fair

Edited January 4, 2011 by luckydriver

[radi8]

what state do you live in that you get to choose? in PA all the boards dictate high increases every year and we cant do a thing about them building new schools when they really arent needed.

 

I don't know what state Athena is in, but here in WI there is a state mandated cap on the school portion of property taxes. If a district wants to exceed it, it has to go to a referendum.

[luckydriver]

i'm moving lol!

[CargoJon]

What this article does not take into consideration is that many of the baby boomers took a beating in the market over the last couple of years and may not be as eager to sell a home which has lost value and then try and fund a retirement out of a devastated 401k. I wouldn't put much faith in this paper because of those simple facts.

This paper is well researched, includes over 50 references and one of the authors is

 

Dowell Meyers, Ph.D

 

You wouldn't put much faith in him? Did you read the paper?

 

If we listened to every expert and academic, we would have unemployment anywhere between 5 and 20%, interest rates between 3 and 15%, and gas prices between $2.50 and $10.00 a gallon.

 

Seriously, everyone's got an opinion.

[Tommy The Cat]

What this article does not take into consideration is that many of the baby boomers took a beating in the market over the last couple of years and may not be as eager to sell a home which has lost value and then try and fund a retirement out of a devastated 401k. I wouldn't put much faith in this paper because of those simple facts.

This paper is well researched, includes over 50 references and one of the authors is

 

Dowell Meyers, Ph.D

 

You wouldn't put much faith in him? Did you read the paper?

 

If we listened to every expert and academic, we would have unemployment anywhere between 5 and 20%, interest rates between 3 and 15%, and gas prices between $2.50 and $10.00 a gallon.

 

Seriously, everyone's got an opinion.

Did anyone read the paper? This isn't a simple, forum-board rant of an opinion, it is as much a sceintific study and breakdown of an inevitable aging problem. And its consequences.

[rgw]

What this article does not take into consideration is that many of the baby boomers took a beating in the market over the last couple of years and may not be as eager to sell a home which has lost value and then try and fund a retirement out of a devastated 401k. I wouldn't put much faith in this paper because of those simple facts.

 

This theory is a bit overblown.

 

Anyone who "took a beating" and stayed in is about back to pre 08/09 values ... and if they continued contributing they are ahead. Just as in 1987 and 2001 if you keep your allocations and contributions intact you ultimately are fine. Anyone invested in equities needs to understand that there are significant risks in doing so.

 

The actual problem is with those who were downsized out/laid off or otherwise became unemployed and were forced to start drawing from the accounts to live on.

[cedski]

What this article does not take into consideration is that many of the baby boomers took a beating in the market over the last couple of years and may not be as eager to sell a home which has lost value and then try and fund a retirement out of a devastated 401k. I wouldn't put much faith in this paper because of those simple facts.

 

This theory is a bit overblown.

 

Anyone who "took a beating" and stayed in is about back to pre 08/09 values ... and if they continued contributing they are ahead. Just as in 1987 and 2001 if you keep your allocations and contributions intact you ultimately are fine. Anyone invested in equities needs to understand that there are significant risks in doing so.

 

The actual problem is with those who were downsized out/laid off or otherwise became unemployed and were forced to start drawing from the accounts to live on.

 

 

The beating I am referring too is in the value of the home they own.

[rgw]

What this article does not take into consideration is that many of the baby boomers took a beating in the market over the last couple of years and may not be as eager to sell a home which has lost value and then try and fund a retirement out of a devastated 401k. I wouldn't put much faith in this paper because of those simple facts.

 

This theory is a bit overblown.

 

Anyone who "took a beating" and stayed in is about back to pre 08/09 values ... and if they continued contributing they are ahead. Just as in 1987 and 2001 if you keep your allocations and contributions intact you ultimately are fine. Anyone invested in equities needs to understand that there are significant risks in doing so.

 

The actual problem is with those who were downsized out/laid off or otherwise became unemployed and were forced to start drawing from the accounts to live on.

 

 

 

 

The beating I am referring too is in the value of the home they own.

 

You noted a "devastated" 401k.

 

As one of the "boomers" I can tell you that none of my associates or contemporaries I know well are or were planning on using their home's "increasing value" as a part of a retirement plan.

 

Most of us have been through real estate bubbles before although certainly not to these depths. The late 70's early 80's recession was certainly an eye opener to many and the mini real estate crash of the early 90's was obviously a precursor of things to come.

 

Maybe driving rates to effective 0% wasn't the best idea after all.

[hairmetal4ever]

One thing to keep in mind is that many of the younger boomers are finding that keeping the big house, as long as you're healthy enough to maintain it, is a good place where the grandkids can visit. THis might somewhat reduce market pressure if more decide NOT to "downgrade" at retirement.

[radi8]

One thing to keep in mind is that many of the younger boomers are finding that keeping the big house, as long as you're healthy enough to maintain it, is a good place where the grandkids can visit. THis might somewhat reduce market pressure if more decide NOT to "downgrade" at retirement.

 

DW and I are tail-end baby boomers, we deliberately bought a larger house than we need for reasons similar to above. We have aging parents, one or more of whom may need to stay with us at some point (I despise nursing homes), and adult children whom we wanted to have the security of a safety net living arrangement if their finances fall apart.

No plans to trade down to a smaller home at retirement, which granted is 15 years out yet. Heck, we could rent a room or two out to local college kids if we needed to supplement our retirement income.