The biggest and most profound effect of the Baby Boomer generation might be to trigger the greatest real estate crash in American history.
The Boomers will trigger the crash by putting tens of millions of homes; for which there might be no buyers, on the market, The Bipartisan Policy Center predicted. The Center estimated that Boomers and their heirs will try to sell 26 million homes by 2030.
The danger there is that younger generations may not want or be able to afford to buy those homes. That will drive down housing prices and put a glut of unsellable property on the market.
How Boomers are About to Bring Down the Real Estate Market
There are currently around 74 million Baby Boomers; people born between the end of World War II in 1945 and 1965, in the United States. It was the Boomers who drove the growth of housing between 1965 and 2000 by buying homes.
Boomers are still driving some home sales, homebuilders are starting to cater to people over 55 because they have more money, The Dallas Morning News reported. A big reason is that it is often easier for boomers with lots of cash in the bank to get a mortgage than for Millennials and Generation Xers; who are still loaded down with student loan debt.
Despite that the sheer number of boomers is a time bomb that will devastate the housing market for a simple reason. As people get older they are more likely to sell their houses. Some people want a smaller place, or to move to a warmer climate, others get disabled and some will die causing heirs to sell the home.
The danger here is that many Millennials (persons born between 1980 and 2000) and Generation X (those born between 1965 and 1980) simply cannot afford to buy some of the houses that will be sold. Others simply will not want the Boomer houses which will be out of style and often located in unfashionable suburbs.
How Aging Boomers will drive down Real Estate Prices
Many of the homes the Boomers will be selling are in places neither Generation X nor Millennials want to live. This includes far out suburbs and neighborhoods full of Brady Bunch style ranch homes and oversized McMansions.
A typical example was a house in the 4700 block of Argonne Street in Green Valley Ranch, a classic postwar Denver suburb. The Scout Vision real estate analytics solution predicted that property will lose around 33% of its value by 2022. Green Valley Ranch is located far east of Downtown Denver. In contrast a house in the 4200 block of Wyandot Street in Denver’s Sunnyside neighborhood, within walking distance of Downtown will lose only 15.6% of its value by 2022.
Meanwhile the average home in the Denver metro area will lose around 21% of its value by 2022 because most people will not be able to afford them, Andrew Schiller; CEO of Scout Vision’s maker Location Inc. told The Denver Post. The home price fall off Scout Vision is predicting is just the beginning of the Great Baby Boomer House Sell Off.
The Great Baby Boomer House Selloff is about to Begin
The big story in American real estate over the next two decades is going to be the Great Baby Boomer House Selloff. Millions if not tens of millions of Baby Boomers will be forced to sell because they simply will no longer be able to afford their homes.
The average household between ages 50 and 55 has only $8,000 saved up for retirement, the Economic Policy Institute reported via CNBC. The average household between 56 and 61 has around $17,000 saved for retirement.
To make matters worse, around one third of Americans; and presumably one third of Baby Boomers, have no money saved for retirement, Time reported. Since guaranteed pensions are a thing of the past a lot of those people are going to have nothing but Social Security.
How Boomers will drive down Real Estate Prices
The average Social Security payment in the United States is currently around $1,350 a month or $16,200 a year, according to the Center on Budget and Policy Priorities. Obviously you cannot support a house on that income, which means a lot of seniors will end up selling.
There will also be a lot of Boomers that will try to make up for the nonexistent retirement savings by calling the real estate agent. A lot of them will be shocked to discover that the house they expected to sell for $300,000 to $400,000 for is now worth $150,000 or less.
To make things worse a lot of those houses will have to be sold off quickly because of health or death. Some Boomers will die, others will have to go to nursing homes or face huge medical bills. Children or grandchildren that live hundreds or thousands of miles away will take the first offer on the house simply to get it off their hands.
Some Effects of the Great Boomer Real Estate Sell Off
This will lead to a lot of cash sales at below market value. That might create a new generation of slumlords and drive speculation in some markets. A huge problem will be that no investor will want to touch real estate in what amounts to a permanent bear market for housing.
A dilemma in some areas of the country will be that Boomers’ heirs will simply walk away from their parents’ or grandparents’ worthless homes. That will leave vast amounts of abandoned property for local governments to deal with. Many communities across the country will end up like Detroit with entire neighborhoods becoming ghost towns.
A more constructive result will be that developers will buy up some of those houses, and bulldoze them to make room for one kind of housing for which the demand is growing – apartments. This is a likely outcome around places like Denver and Los Angeles; which have skyrocketing rents and little empty land in the city’s core.
The Emptying out of Communities
The effects of the Boomer sell off and die off will be greater in some areas of the country. A major result of the boomers’ passing will be population shrinkage in some states and communities.
The poster child for such a place is Vermont where the number of deaths now exceeds the number of births in the state, Fiscal analyst Neil Schickner told Vermont Public Radio. Schickner believes that Vermont’s population will soon start to fall.
This will create a fiscal crisis because not enough people will be working to pay for the services the seniors will need, Joyce Manchester an economist for Vermont’s State Legislature said. It might also lead to a labor shortage. That’ll drive down real estate prices because many seniors will sell their property and move away to where the services or their families are.
The effects of this on real estate values have been can be seen in Scout Vision’s forecast for property values in the Watertown/Fort Drum region of Upstate New York, which is similar to Vermont. The average home in that area will lose 24.7% of its value between 2017 and 2022.
Where Boomers will drive up Real Estate Values
There are a few warm-weather communities where cash strapped Boomer retirees will drive up property values, Scout Vision predicted. Two of the solution’s top five areas for property appreciation between 2017 and 2022 are Yuma, Arizona, and Laredo, Texas.
Property values in Yuma will increase by 38.1% by 2022, homes in Laredo will see a 34.7% price increase. Warm weather and low costs will make some of those areas attractive for retirees. The average home in Yuma currently costs around $139,600 and the average house in Laredo sells for $120,900, according to Zillow.
Property values in areas attractive to affluent Boomers will also increase. Home prices in toney Hilton Head Island and Bluffton-Beaufort, South Carolina are forecast to increase by 30.5%. The growth there will be driven by an influx of golf and boat-loving retirees.
Boomers are about to change America again, they’re going to completely distort the real estate market by getting older. The big beneficiaries of this will be Millennials and Generation Xers who will be paying a lot less for housing in a few years.