Unlike just 15 years ago, many baby boomers are discovering that the large, high-end homes with their high-maintenance costs no longer fit their needs as they grow older.
And younger people aren’t buying big houses, either. It wasn’t that long ago when boomer retirees were rushing to buy or build elaborate, five or six-bedroom houses in warm climates, fueled in part by the easy credit of the real estate boom.
Many baby boomers poured millions into these spacious homes, planning to live out their golden years in houses with all the bells and whistles.
“Tastes — and access to credit — have shifted dramatically since the early 2000s. These days, buyers of all ages eschew the large, ornate houses built in those years in favor of smaller, more-modern looking alternatives, and prefer walkable areas to living miles from retail,” according to the Wall Street Journal, March 21.
The Journal opined that the problem is expected to worsen in the 2020s, as more baby boomers across the country advance into their 70s and 80s, the age group where people typically exit homeownership due to poor health or death. Boomers currently own 32 million homes and account for two out of five or 40% of the homeowners in the country.
Buyers have been led down the path of focusing on location, interest rates and inventory. The most important factor to take into consideration, however, is buying behavior based on age.
Thanks to the U.S. Census Bureau and Dent Research we can see that Americans tend to buy their first house at 31, their largest around 41 and sell those same homes at 79.
Born between 1946 and 1964, baby boomers turn anywhere from 55 to 73 this year. From 1980 to 2000 40% of all homes purchased in the U.S. were on lot sizes of a half acre to 10 acres, according to Dent Research. That is a 20-year period, where individual thinking boomers who were doing the same thing at the same time of the age group couldn’t live without their magnificent McMansions.
It stands to reason for this observer that current prices are a direct result of 76 million Americans coming into the equation. It didn’t matter whether the population was legal or illegal, legitimate or illegitimate.
With all of that demand for housing coming out of the woodwork, home prices must go up. On the other side of the equation, it becomes reasonable that when boomers who constitute 24% of the U.S. population go to heaven the supply and demand principles come back into play.
When 130 years of residential real estate remains on this earth after 76 million people go to heaven without those McMansions, you tell me where you think prices are headed.
From 1929-32 New York real estate declined 69%, wrote Zubin Jelveh in The New Republic in September 2009. That’s the same time that the stock market was off 89%, according to Yahoo Finance.
Jelveh went on to say, “A home owner who would have invested in a house on the eve of the Great Depression would not have recovered the full value of their investment until four decades later.”
If you were an adult in the early 1900s the average age of death was mid-50s, according to the U.S. Census Bureau. So you died with great regret long before prices fully recovered.
Neither of those events could ever happen again, right? Investors understand buy low, sell high. The same stock logic applies to all highly appreciated assets.
Savvy investors don’t let emotion dictate their behavior. Or you can be in the middle the pack or at the back of a herd of cows, where the view and the smell never changes.
John L. Grace is president of Investor’s Advantage Corp, a Los Angeles-area financial planning firm that has been helping investors manage wealth and prepare for a more prosperous future since 1979. His On the Money column runs monthly in The Wave.