Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

How and Why Baby Boomers are distorting the Real Estate Market

Baby boomers are responsible for America’s crazy real-estate market with its insanely-priced houses, high rents, and housing shortage. Boomers; those aged 52 to 71, are driving up property prices by simply refusing to sell their homes, Zillow Chief Economist Svenja Gudell told CNBC’s On the Money.

“The traditional ’empty nest’ storyline where parents would be downsizing is not happening,” Gudell said on 24 September. Historically people over 50 have driven down prices by selling their homes when the kids left home.

That’s not happening and it is partially responsible for America’s housing shortage. Zillow found that America’s inventory of empty houses was at its lowest level in four years in May. The amount of housing on the market fell by 9.4% in May 2017 alone.

That drove prices up in some cities, for example in Seattle the inventory fell by 22.2% while housing values increased by 12.7%, a Zillow release stated. Even some cities with a housing glut were affected; the home inventory in Detroit fell by 18.7% while values rose by 10.5% in May.

Does Income Inequality Prevent Baby Boomers from Selling Homes

Gudell did not give a direct explanation for this development. A probable cause is today’s lousy economy with its wage stagnation and income inequality.

Some ways that income inequality and wage stagnation can keep Boomers from selling homes include:

  • Economic factors such as student loans and low salaries are keeping many Millennials, those under 35, and even some Generation Xers, those under 52 from leaving home. That means many Boomers need those large houses because the alternative is their kids or grandkids sleeping at the homeless shelter.


  • Some boomers might be afraid that their kids or grandkids will have no place to live if they sell the large home. There are news stories about Facebook employees living in their parents’ garages in Silicon Valley because they cannot afford to live anywhere else.


  • Many boomers might be afraid they will not be able to find a decent place to live if they sell their home. They are scared they might end up in a cracker-box apartment; or the trailer park, if they sell the ranch house in the suburbs.

  • There simply is no demand for some of the houses Boomers might sell. The National Association of Realtors reported that sales of homes worth less than $250,000 are falling. Since the average U.S house price is around $199,000 – a lot of sellers cannot find buyers in this market.


  • A lot of boomers might be underwater on their mortgages. Even at today’s high prices, they might make little or nothing from selling their homes. It makes more sense for these people to stay put.


  • Mortgage interest is tax deductible. By staying in the big house and taking out a second mortgage, Boomers give themselves a nice deduction.


  • Some Boomers are using mortgage equity to finance their lifestyle. They pay for purchases like boats or vehicles or pay off credit card debt with second mortgages or home-equity loans. There are undoubtedly desperate boomers that are using mortgage money to pay for utilities, insurance, medical expenses, vehicle payments, and even groceries.

  • People using mortgage equity to finance their lifestyle cannot afford to sell their home because it might be their only source of “income.”


  • A lot of Boomers simply cannot part with all the stuff they accumulated over the years. They are afraid to sell the house because they would also be forced to sell the comic-book collection, the muscle car, the RV, the boat, their record collection, and the Star Trek collectibles.


  • The economy is now so bad that some people rely on Airbnb rental income to pay the bills. A company called Loftium is even offering mortgages tailored for Airbnb renters. Others use factoring of Airbnb invoices through companies like Payfully to pay the bills.


  • Many boomers are deliberately trying to drive up real estate prices by refusing to sell.


Great Boomer Real Estate Selloff Coming

This creates a serious housing shortage right now, but it will lead to a glut of houses on the market that will crash real estate prices at some point. The crash will come when circumstances force Boomers to sell all those houses.

The biggest cause will be economic, GoBanking Rates estimated that seven in 10 Americans; and by inference seven in 10 Boomers have less than $1,000 in savings. That means vast numbers of Americans will soon have nothing but Social Security to live on, and the average Social Security payment in 2017 was $1,342 a month.

They will end up having to sell the house, and more than a few of them will end up in foreclosure because of all those second mortgages and home-equity loans. Things will get worse if there is a major stock-market correction that sinks the value of 401Ks and IRAs.

When Boomers Sell the Market will Fall

We might see vast amounts of real estate dumped on the market at once by desperate Boomers if there is any sort of economic downturn. Others will sell because of medical problems, old age, or houses they cannot maintain.

Many of these houses will be sold quickly for pennies on the dollar. Quite a few of the sellers will be the Boomers’ children or grandchildren that just want to unload that cruddy old house fast.

Sales will escalate as Boomers age, many of them will die, while others will have to sell fast because of medical problems. A related problem is that many of those houses will be in terrible condition because the aging Boomers were unable to maintain them because of poor health or lack of money.

This means we are likely to see a sudden and destructive drop in home prices in the next few years. Worse, we are likely to see a series of such corrections over the next decade that might send house prices to fantastic lows.

The implication of all this is clear; if you are thinking of selling your home, list now. Most of us may not see home prices this high again in our lifetimes.

If you are thinking of buying a home, hold off as long as possible, there might be a lot of tremendous bargains on the market in the near future: thanks to the great Baby Boomer Sell Off. It’s coming and it’s going to be great for buyers and bad for sellers.