In a recent article in Forbes Magazine by Mary Meehan titled “The Baby Boomer Housing Bust“, the author makes the case that in the coming years the Baby Boomers may have a hard time selling their homes to the Millenials. She states that many Baby Boomers (people born between 1946 and 1964) will need to sell their large suburban homes to finance their retirement and that the younger buyers may not be interested in buying those homes.
It’s an interesting article, especially since in the Boulder area we are seeing a strong sellers market with strong demand for any property listed. But since real estate markets change and many people are talking about how the changing demographics in America will affect housing, I thought I would explore the connection between Baby Boomers, Millenials and real estate. Here are the topics I’d like to touch on:
- Baby Boomers need to sell homes to fund retirement.
- Younger buyers, including Millennials have different attitudes regarding home ownership.
- There will be an unmatched demand for the supply of homes on the market.
According to a National Association of Realtors (NAR) 2014 Generational Trends Survey, Millennials made the most real estate purchases in 2013. Here is the breakdown:
Millennials (1980 – 1995) 31% of purchases
Gen X (1965 – 1979) 30% of purchases
Young Boomers (1955 – 1964) 16% of purchases
Older Boomers (1946 – 1954) 14% of purchases
Silent Generation (1925 – 1945) 9% of purchases
For reference, here are the latest population percentages in the United States and Boulder County: Under 18 25.7% (22.9%); 18-24 9.6% (13.4%); 25-44 30.2% (33.6%); 45-64 22% (22.3%); 65+ 12.4% (7.8%).
My takeaways from this are: The Baby Boom generation is roughly 25% of the population. I always had the perception that the 65+ cohort was a bigger percentage. I know that it’s growing, but it’s in the future, not in the present. And did you notice the low percentage of retirees in Boulder County? Just 7.8% of our local population.
Some facts about the Baby Boomers:
- The youngest of the 78 million Boomers are turning 50 this year.
- 10,000 Boomers a day are turning 65 years old, this will happen every day through 2030.
- Younger Boomers have less savings and a lower homeowner rate than older Baby Boomers.
- Boomers own 32 million single family homes.
- They have had a great run in the real estate market. Owning a home has been a great investment.
- So far, this generation has been net even in the housing market. When they sell one, they buy one. This will change but will the Millenials be ready to buy?
Some Facts about Millennials:
- They are the second largest generation.
- Despite the housing crash in 2008, 2/3 believe that owning a home is essential to living a good life.
- This generation is delaying home buying due to high student debt and a tough job market.
- Despite having a delayed start in the housing market Millenials bought the most homes in 2013 (see above).
- The U.S. housing market saw it’s first sustained downturn during many of the Millenials first buying/owning experience. This has led to a more subdued mindset about housing.
Are The Baby Boomers Ready For Retirement?
In the 2013 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI), workers aged 55 and older said the following about their retirement savings:
- 60% have less than $100,000 in retirement savings
- 43% have saved less than $25,000
- 36% have saved less than $10,000
As a point of reference, of all workers surveyed:
- 76% have less than $100,000 saved
- 57% have less than $25,000 saved
- 46% have less than $10,000 saved
Despite the apparent lack of adequate savings, 70% of all workers surveyed also said they believe they are “doing a good job of preparing for retirement”—even though only 46% of all workers surveyed have a retirement plan!
According to the information above it’s clear that many Baby Boomers are not ready for retirement. Selling their family home and moving to a lower priced home and supplementing their retirement with the difference seems to be a key component to many “plans”.
Are Millenials Interested In Boomers Homes?
During the last fifteen years Baby Boomers have been purchasing upgraded homes and second homes. Generation X who are on the heels of the Boomers, are a smaller generation and after the economic downturn are in recovery mode. Gen X won’t be able to buy all of the homes that Boomers are getting ready to sell. Millenial generation home buyers have been less interested in size and more interested in location. So far, being near the action is more important that having a status symbol. This generation is large but is just getting geared up in the home buying cycle. So far, demand has met the supply of homes but as more and more Boomers sell their large homes the younger generations may not be interested in them. Especially if it’s large and suburban.
Will Supply and Demand Meet?
The latest US Census data suggests that the population in the United States will grow 27% between 2015 and 2060. As a friend of mine says “clearly there will be a set of cheeks for every seat”. In fact for the foreseeable future, home builders will need to stay busy to keep up with demand. So the question in my mind is not a question of scope but of type. There will clearly be enough home buyers to meet the seller demand but will the price range, type and location meet the buyers desires. Those Boomers with McMansions away from urban areas may find decreasing demand for that type of housing in the future.
The Local Spin
According to a recent National Association of Realtors report both Millenials and Baby Boomers see the Denver area as one of the top areas in the country to relocate to. I have found that I’m working with many more experienced home owners who are looking to the Boulder area as a place to retire. College towns are especially popular throughout the country although Boulder is rare in that the home prices prohibit less affluent people from retiring here. Millenials follow lifestyle and jobs and the Front Range of Colorado including Boulder County has plenty of both. So in my mind, as long as the lifestyle and economy stay favorable, we will still have people wanting to live in the Boulder area.
As more and more Baby Boomers retire, the real estate market will take on a different character. Many Boomers will downsize and while there will be a demand for their homes, price appreciation may stagnate over time. Millenials may not have the exact same taste in homes than do the Boomers, but as the U.S. population grows towards 400 million people in the next 40 years, the demand for housing will expand. And as Will Rogers said “Buy land. They ain’t making any more of the stuff.”