Hmmm.... baby boomers with families were a driving force for the demand of large single family housing in suburbia between 1990 and 2010. Now with the aging population depending on when they decide to retire and downsize their homes this will affect demand for these homes. The housing preferences of 25 to 35 yr olds are radically different than their parents. Also, younger generation are having fewer kids than their parents as birth rates decrease. This may translate to less demand for large homes with increasing demand for condos and multi-family housing. The effects are something to think about.
How Will Retiring Boomers Affect The Real Estate Market?
Published :
Wednesday, October 16, 2013
If someone asked you where the next housing bust was going to
come from, what would you say? Would you point to the first signs of a
newly resurgent and potentially overheated housing market? Would you
worry whether banks are going to loosen their purse strings again and
start taking on risky mortgages? You would probably come up with
something like this, or another equally plausible idea. However, what
you probably wouldn’t do is to point at the baby boom generation – which
has been the conventional bedrock of the American economy for as long
as anyone can remember, despite briefly letting their hair down in the
1960s.
Well, baby boomers are possibly where our next financial crisis will arise. Worse yet, if that crisis does come, it’s not going to be because of what baby boomers are going to do – it will be a result of what they have done already.
The swell of people who were born between 1946 and 1964 has been making its way through America’s population statistics like a bulge in a pipe – their sheer numbers have distorted our economy and demographics for over 60 years. It’s not that individually or as a group they have done anything wrong – it’s just that as they stop working and retire, there is a chance that America will fall over as if it had been walking into a heavy wind.
To understand this, let’s look at some of the figures. First, there are no less than 78 million baby boomers in the United States – give or take a few. Given the fact that they were born over approximately a 20 year period, that means we can expect 4 million baby boomers to retire each year on average for the next 20 years. Now, if you assume that 75% of these are married couples with families, then we are talking about no less than 1.5 million households coming up to retirement on an annual basis.
Boomers with families were at the peak of their earning power between 1990 and 2010, and they drove enormous demand for one category of housing – large single-family dwellings located in suburbia. In fact, according to some researchers, this demand for large-lot suburban homes was responsible for more than 75% of overall new housing construction in America over this period. Around one third of these houses were larger than 2500 square feet, and 40% of them were built on lots that were more than half an acre in size.
So, now that boomers are starting to retire, what will they do with their homes?
A lot of them will look to downsize, and others will decide in the end to move to a retirement community in Playa Vista California or somewhere else. Now, this is a perfectly reasonable thing to do, but it leads to the obvious question – who is going to buy all these large single-family properties as they come onto the market? Of course, in some thriving urban centers, population growth is going to go a long way toward absorbing the influx, but what happens in other areas in the country where there is little growth – or even a declining population?
It could be argued that it will all be manageable. For example, it is an unreasonable assumption that everyone will downsize immediately once they reach the age of 65. This is perfectly true, but statistics show that approximately 7% of households that are headed by someone age 65 or older move each year. So, while the inevitable may be somewhat delayed, it is going to happen in the long run. Then, there is the increasing trend among retirees to “age in place.”
However, while aging in place may be an option for most people in their late 60s and early 70s, it probably isn’t feasible for many once they have reached their late 80s or early 90s – an increasingly common occurrence. At this point, there is a strong probability that many people who need to move will face a housing market where demand is low and prices are depressed. While they may not have mortgages to pay, are they going to be able to afford the upkeep on their homes while financing the sort of care that they need? Or, is it more likely that they are going to walk away from their homes at that point, compounding an already precarious housing market?
Of course, it can be argued that while there is a bulge, the up and coming generations will still absorb a lot of this – leaving pain but no prospect of Armageddon. However, consider this – baby boomers had an extraordinarily large number of children compared to what we have today – in fact, US birthrates are at a historic low. In other words, there is going to be less of an appetite for the single-family dwellings that baby boomers relinquish as they begin to age. There is already strong evidence of this – the housing preferences of those aged between 25 and 35 are radically different from those of their parents. Demand for condominiums and multiple family dwellings is on the rise, especially in convenient non-suburban locations. The single-family suburban home is slowly being sucked into a demographic vacuum.
Of course, some groups in the United States are growing in numbers, and therefore are more likely to need a large single-family dwelling. Hispanics are a good example of this – not only are they increasing as a percentage of the American population, but they are also more likely to live in multigenerational family groups. However, the burning question is whether or not minority groups such as the Hispanics will be able to overcome the economic disparities that they face and afford large detached homes. Of course, if prices fall far enough, these homes will definitely come within reach of minorities – but by that point, we already will have experienced the housing bust that we set out to avoid.
Source: http://www.nuwireinvestor.com/articles/how-will-retiring-boomers-affect-the-real-estate-market-61251.aspx
Well, baby boomers are possibly where our next financial crisis will arise. Worse yet, if that crisis does come, it’s not going to be because of what baby boomers are going to do – it will be a result of what they have done already.
The swell of people who were born between 1946 and 1964 has been making its way through America’s population statistics like a bulge in a pipe – their sheer numbers have distorted our economy and demographics for over 60 years. It’s not that individually or as a group they have done anything wrong – it’s just that as they stop working and retire, there is a chance that America will fall over as if it had been walking into a heavy wind.
To understand this, let’s look at some of the figures. First, there are no less than 78 million baby boomers in the United States – give or take a few. Given the fact that they were born over approximately a 20 year period, that means we can expect 4 million baby boomers to retire each year on average for the next 20 years. Now, if you assume that 75% of these are married couples with families, then we are talking about no less than 1.5 million households coming up to retirement on an annual basis.
Boomers with families were at the peak of their earning power between 1990 and 2010, and they drove enormous demand for one category of housing – large single-family dwellings located in suburbia. In fact, according to some researchers, this demand for large-lot suburban homes was responsible for more than 75% of overall new housing construction in America over this period. Around one third of these houses were larger than 2500 square feet, and 40% of them were built on lots that were more than half an acre in size.
So, now that boomers are starting to retire, what will they do with their homes?
A lot of them will look to downsize, and others will decide in the end to move to a retirement community in Playa Vista California or somewhere else. Now, this is a perfectly reasonable thing to do, but it leads to the obvious question – who is going to buy all these large single-family properties as they come onto the market? Of course, in some thriving urban centers, population growth is going to go a long way toward absorbing the influx, but what happens in other areas in the country where there is little growth – or even a declining population?
It could be argued that it will all be manageable. For example, it is an unreasonable assumption that everyone will downsize immediately once they reach the age of 65. This is perfectly true, but statistics show that approximately 7% of households that are headed by someone age 65 or older move each year. So, while the inevitable may be somewhat delayed, it is going to happen in the long run. Then, there is the increasing trend among retirees to “age in place.”
However, while aging in place may be an option for most people in their late 60s and early 70s, it probably isn’t feasible for many once they have reached their late 80s or early 90s – an increasingly common occurrence. At this point, there is a strong probability that many people who need to move will face a housing market where demand is low and prices are depressed. While they may not have mortgages to pay, are they going to be able to afford the upkeep on their homes while financing the sort of care that they need? Or, is it more likely that they are going to walk away from their homes at that point, compounding an already precarious housing market?
Of course, it can be argued that while there is a bulge, the up and coming generations will still absorb a lot of this – leaving pain but no prospect of Armageddon. However, consider this – baby boomers had an extraordinarily large number of children compared to what we have today – in fact, US birthrates are at a historic low. In other words, there is going to be less of an appetite for the single-family dwellings that baby boomers relinquish as they begin to age. There is already strong evidence of this – the housing preferences of those aged between 25 and 35 are radically different from those of their parents. Demand for condominiums and multiple family dwellings is on the rise, especially in convenient non-suburban locations. The single-family suburban home is slowly being sucked into a demographic vacuum.
Of course, some groups in the United States are growing in numbers, and therefore are more likely to need a large single-family dwelling. Hispanics are a good example of this – not only are they increasing as a percentage of the American population, but they are also more likely to live in multigenerational family groups. However, the burning question is whether or not minority groups such as the Hispanics will be able to overcome the economic disparities that they face and afford large detached homes. Of course, if prices fall far enough, these homes will definitely come within reach of minorities – but by that point, we already will have experienced the housing bust that we set out to avoid.
Source: http://www.nuwireinvestor.com/articles/how-will-retiring-boomers-affect-the-real-estate-market-61251.aspx
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