Baby Boomer Bust
I've been concerned for years about this very issue. Looks like someone's finally doing some research to back me up.
http://www.latimes.com/classified/re...,5165011.story
From the Los Angeles Times
HOUSING SCENE
A baby-boomer bubble is forecast
Researchers predict a 'generational' dive in housing demand and say it could cause a major price downfall.
By Lew Sichelman
United Feature Syndicate
February 10, 2008
WASHINGTON -- The common perception among economists is that the current housing mess will be a relatively short-term affair that should see a return to normalcy within the next few years.
But, according to a new study by two USC researchers, problems of greater proportion lie just ahead. They call it the "generational housing bubble" and maintain that it will be fueled by the same baby boomers who have been bidding up prices since 1970 as they moved up the housing ladder.
Now, 78 million boomers are about to enter their twilight years when homeowners tend to become sellers rather than buyers. And as a result, the USC duo expects there will be "many more homes available for sale than there are buyers for them."
As the elderly become more numerous than the young, and shift into seller mode, the researchers postulate, the market imbalance could come quickly around 2011, causing housing prices to fall.
Only time will tell whether the projections by Dowell Myers, a professor of urban planning and demography in USC's School of Policy, Planning and Development, and Sungho Ryu, a doctoral candidate at the school and an associate planner with the Southern California Assn. of Governments, will come to pass.
After all, not all seniors retire or sell their homes and move to smaller places. Many prefer to age in place and live in their own homes. But eventually, as they die off, most of their homes will come on the market.
Myers and Ryu's foreboding prophecies bring to mind a 1989 study by a pair of Harvard economists, who predicted a 47% decline in housing prices during the 1990s because boomers would stop buying as they aged. Housing-industry economists lambasted that forecast as pure poppycock, and it eventually went up in smoke.
The USC researchers don't expect the generational correction to begin until 2011 or so. That's just about the time the most pessimistic prognosticators suggest the U.S. market will return to normal after five years or so on the rocks.
But it's also when the first wave of boomers reaches age 65, the traditional dividing point between seniors and working adults. And once that tipping point is reached, Myers and Ryu say, they will put more houses up for sale than the market will be able to absorb.
The researchers base much of their theory on the historic relationship between age and housing demand. For most of the American life span, the rates of buying and selling remain closely related because those who sell one house typically buy another. When people enter their late 50s and early 60s, as the leading wave of baby boomers has now done, buying and selling are in balance. When they reach their mid-60s, though, sellers start to outnumber buyers. And when they hit their 70s, sellers dominate.
People continue to buy homes after that age. But once they hit that benchmark, the number of sellers begins to exceed the number of buyers. Once they reach 75, they are three times as likely to be sellers than buyers. And at 80 and above, they are nine times more likely to be sellers.
Myers and Ryu project that the ratio of those age 65 and over to people ages 25 to 64 will surge 30% in the decade between 2010 to 2020 and 29% more in the 2020s, altering the balance between buyers to sellers for the foreseeable future.
They say the supply of houses on the market will be dominated by the actions of aging homeowners "who have little ability to postpone" their need to sell and retire from the housing market. They also caution that boomers facing age-related issues "could flood the market with excess supply."
If values decline, as the researchers suspect they will, boomers who remain owners will suffer because their equity will fall, shrinking what for many is their retirement savings.
If there is a positive aspect to Myers and Ryu's dire predictions, it's that the coming generational bubble will be a rolling one that won't affect all housing markets at the same time. And in some states, the sell-off will come later rather than sooner. Regional differences may be sharp.
Historically, seniors don't become net sellers in Arizona, Florida and Nevada until they reach 75. But the opposite is true in 13 other states -- Alaska, California, Connecticut, Illinois, Indiana, New Jersey, New York, Maryland, Massachusetts, Michigan, Minnesota, Ohio and Rhode Island. In those states, the crossover starts at age 55.
Lew Sichelman can be reached at [email protected].
http://www.latimes.com/classified/re...,5165011.story
From the Los Angeles Times
HOUSING SCENE
A baby-boomer bubble is forecast
Researchers predict a 'generational' dive in housing demand and say it could cause a major price downfall.
By Lew Sichelman
United Feature Syndicate
February 10, 2008
WASHINGTON -- The common perception among economists is that the current housing mess will be a relatively short-term affair that should see a return to normalcy within the next few years.
But, according to a new study by two USC researchers, problems of greater proportion lie just ahead. They call it the "generational housing bubble" and maintain that it will be fueled by the same baby boomers who have been bidding up prices since 1970 as they moved up the housing ladder.
Now, 78 million boomers are about to enter their twilight years when homeowners tend to become sellers rather than buyers. And as a result, the USC duo expects there will be "many more homes available for sale than there are buyers for them."
As the elderly become more numerous than the young, and shift into seller mode, the researchers postulate, the market imbalance could come quickly around 2011, causing housing prices to fall.
Only time will tell whether the projections by Dowell Myers, a professor of urban planning and demography in USC's School of Policy, Planning and Development, and Sungho Ryu, a doctoral candidate at the school and an associate planner with the Southern California Assn. of Governments, will come to pass.
After all, not all seniors retire or sell their homes and move to smaller places. Many prefer to age in place and live in their own homes. But eventually, as they die off, most of their homes will come on the market.
Myers and Ryu's foreboding prophecies bring to mind a 1989 study by a pair of Harvard economists, who predicted a 47% decline in housing prices during the 1990s because boomers would stop buying as they aged. Housing-industry economists lambasted that forecast as pure poppycock, and it eventually went up in smoke.
The USC researchers don't expect the generational correction to begin until 2011 or so. That's just about the time the most pessimistic prognosticators suggest the U.S. market will return to normal after five years or so on the rocks.
But it's also when the first wave of boomers reaches age 65, the traditional dividing point between seniors and working adults. And once that tipping point is reached, Myers and Ryu say, they will put more houses up for sale than the market will be able to absorb.
The researchers base much of their theory on the historic relationship between age and housing demand. For most of the American life span, the rates of buying and selling remain closely related because those who sell one house typically buy another. When people enter their late 50s and early 60s, as the leading wave of baby boomers has now done, buying and selling are in balance. When they reach their mid-60s, though, sellers start to outnumber buyers. And when they hit their 70s, sellers dominate.
People continue to buy homes after that age. But once they hit that benchmark, the number of sellers begins to exceed the number of buyers. Once they reach 75, they are three times as likely to be sellers than buyers. And at 80 and above, they are nine times more likely to be sellers.
Myers and Ryu project that the ratio of those age 65 and over to people ages 25 to 64 will surge 30% in the decade between 2010 to 2020 and 29% more in the 2020s, altering the balance between buyers to sellers for the foreseeable future.
They say the supply of houses on the market will be dominated by the actions of aging homeowners "who have little ability to postpone" their need to sell and retire from the housing market. They also caution that boomers facing age-related issues "could flood the market with excess supply."
If values decline, as the researchers suspect they will, boomers who remain owners will suffer because their equity will fall, shrinking what for many is their retirement savings.
If there is a positive aspect to Myers and Ryu's dire predictions, it's that the coming generational bubble will be a rolling one that won't affect all housing markets at the same time. And in some states, the sell-off will come later rather than sooner. Regional differences may be sharp.
Historically, seniors don't become net sellers in Arizona, Florida and Nevada until they reach 75. But the opposite is true in 13 other states -- Alaska, California, Connecticut, Illinois, Indiana, New Jersey, New York, Maryland, Massachusetts, Michigan, Minnesota, Ohio and Rhode Island. In those states, the crossover starts at age 55.
Lew Sichelman can be reached at [email protected].
Comments
So for me I should stay in my house for 10 more years and then upgrade to a pre-owned starter mansion on the cheap.
The reverse is true, however, for florida homeowners.
Are you sure you are right about that....
I would expect Florida to be hardest hit with this suspected imbalance.
Fellows
The article notes that the leading edge of this event is 2011. Not far off. One has to also factor in the effect of the Baby Boomer retirement wave affecting Social Security, the vote, taxes... anyone in their 20s and 30s are going to be slammed with a whole host of problems.
Yup. On the plus side, the enterprising individuals among us are about to get a lot of raises. But as much as I've made a big deal about the social security meltdown, everyone is just as happy to sweep it under the carpet until it becomes a glaring problem. At that point, you can be sure that a lot of politicians are going to be voted into office on the grounds that they intend to support SS reform. The reverse is also true, that some of the elderly will elect politicians to support their financial interest in SS, but I'm not certain this constituency will have the clout to keep things as they are: there are a lot of folks in that generation, and indeed in all generations, who are fiscal conservatives and will continue to vote on principle.
As for 2011, I don't think there will be a pronounced affect until 2025, when the folks born in 1950 turn 75.
Can't they just crawl back into their VW Bus and leave us all alone?
Yup. On the plus side, the enterprising individuals among us are about to get a lot of raises. But as much as I've made a big deal about the social security meltdown, everyone is just as happy to sweep it under the carpet until it becomes a glaring problem. At that point, you can be sure that a lot of politicians are going to be voted into office on the grounds that they intend to support SS reform. The reverse is also true, that some of the elderly will elect politicians to support their financial interest in SS, but I'm not certain this constituency will have the clout to keep things as they are: there are a lot of folks in that generation, and indeed in all generations, who are fiscal conservatives and will continue to vote on principle.
As for 2011, I don't think there will be a pronounced affect until 2025, when the folks born in 1950 turn 75.
Perhaps things will be all sorted out by 2040 when strong AI will be common and cheap. As a matter of fact, we might be under the whip of a global intelligence by then. I, for one, welcome our new MacOverlords?.
Perhaps things will be all sorted out by 2040 when strong AI will be common and cheap. As a matter of fact, we might be under the whip of a global intelligence by then. I, for one, welcome our new MacOverlords?.
Humanity doesn't need an overlord, just or otherwise.
Nonsense. There are plenty of people to replace the Boomers. The matter is simply whether we want to let them in or not. Demography is destiny. Those who have the babies make the future and even the stupid selfish boomers cannot change that.
Sorry, you're wrong.
http://us.acnielsen.com/pubs/2006_q3...byboomer.shtml
Quote from the link:
Golden, global concerns
Not only is the U.S. population aging, the very old component is growing at an even faster rate. In 2000, there were approximately 72,000 centenarians in the U.S. By 2050, using mid-range Census Bureau estimates, that number will increase fourteen-fold, exceeding 834,000. To get a relative sense of size, it would take a city as large as Detroit to house all the people older than 100 at the mid-century point.
Concerns about aging are not confined within the borders of the United States. Worldwide, the current ratio between the young (under 20) and the old (over 65) is roughly 3:1. By 2050, that ratio will recalibrate to equilibrium at 1:1. At that point, older people will outnumber younger ones for the first time in recorded history.
Another:
A perfect storm
The graying of America presents a number of questions such as the prospective impact of impending retirements on:
1. financial markets, as Boomers prepare to liquidate equity holdings and supplement retirement savings;
2. real estate markets, as Boomers prepare to trade down from large homes?a flurry of sales may add momentum to the imploding housing market;
3. employment issues, as Boomers exit the workplace and the baby bust generation comes up 11 million people short of available openings;
4. consumer spending, as Boomers retire or are forced into second careers, part-time or lower paying positions;
5. healthcare system, as Boomers begin to experience the inevitable decline of physical vigor and the onset of chronic illnesses like high blood pressure and diabetes.
An uncertain outcome
Some pundits ponder these issues and see the makings of a perfect storm capable of capsizing the U.S. economy. Others see the opportunity to extend the consumer use-life by extending the Boomer work-life from an arbitrary retirement at age 65, to an open-ended employment contract that keeps people working, and earning, for as long as they are physically able. [See sidebar on ?Working Retirements? below.
Society has never been asked to solve a socioeconomic equation with so many unknown variables before. There simply have never been so many old people, living so long and staying so healthy.
From a marketing perspective, one thing is certain. Older Boomers represent both a viable market and one too large to ignore.
Sorry, you're wrong.
I'm seldom wrong. Why don't you go search for my Greenspan recession thread and see how wrong I was there.
You have to realize that the word bust only applies to how the Boomers are screwed. For everyone else it is cheap stocks, cheap housing and ample opportunities. Even if the inflation train comes running through, everyone else gets to run on the treadmill while the boomers are the ones who have to get off and watch their purchasing power diminish.
In short, boomers lose, everyone else wins and boomers are not America.
Boomers are going to be broke. Boomers are going to be wondering who is going to pay their Social Security and take care of their debts they have run up. The fact that they won't be able to get $500k for their homes and instead have to accept $250k won't hurt their children. It will hurt them. When their children inflate away those debt and destroy the purchasing power of their 401k's and pensions, it won't hurt their children, it will hurt them.
A pretty strident comment there, T-man.
Well I've softened up quite bit. I have a quote somewhere on here where I said the silver bullet solution to the boomer's problems is a literal silver bullet. See how much nicer this is in comparison to that?
I would tend to agree with the premise that boomers have hurt themselves the most: hell, this is the generation that been hurting itself since its birth.
The real problem will be much worse than them getting older. In the past we have only had to deal with their generational selfishness and self-centeredness. Now we are going to be dealing with their denial related to aging and finally passing on from the planet. I say good riddance.
But it's going to be one hell of a bumpy ride though all of it, especially when cascaded with the growing, worldwide tensions between Islamic affairs and the West (yes, in general), the ever-present whimsies of the fiscal left (now it's universal health ... go chat with a Canadian on that), and what appears to be a complete fracture developing between evangelicals and the rest of the right.
It could indeed be a bumpy ride and I believe that soon we will begin pondering generational accounting as a result. I think as the boomers retire they will see how the generation after them are going to call in the chips so to speak. The boomers will be able to vote but the reality is that they will no longer have the cunning or energy to address what will be happening to them. Their own games are going to be run against them by younger people with more energy.
I'm firmly of the opinion that inflation will return and that the generation after them will somehow decouple entitlements from it. This will solve the entitlement problem in part by cutting benefits without really cutting them. You let inflation run 6-7% while actually raising benefits 1-2% and the government will just lie about the numbers. (Hell they already do)
I believe we will end up endorsing a universal health care program but I believe the reasoning on this will be a bit perverse. It will be because as the boomers begin desiring all their life extending and quality of life procedures, we will be able to ration care and deny them these items. You will see hip, knee replacements and other procedures limited by the government due to preexisting conditions much like what is happening in Britain now.
I think America lucky in that our illegal immigrants don't happen to want to kill us unlike Europe. We don't have to worry about Mexicans being radicalized religiously. I think we will soon see an amnesty program in part because of the "retirement crisis."
No, it's not the first time there have been problems in American society, but it's the first time in while where it seems that the whole system needs an overhaul to better suit the needs of a larger and more diversified constituency. Without a miracle, we can expect mediocre non-solutions in almost all areas.
I think the "miracle" will hopefully be some economic self-interest and a realization that we need to bring the troops home not just from Iraq but from Germany, from Korea, from Japan ,etc. The boomers have been spreading and believing their own lies for too long. You see anyone who even hints at these positions beginning to generate big money when a Perot, Paul, or anyone even hints at them. You put them to a young face and watch the tide turn.
I'm sorry to all the traditional Republicans here, but the answer to the low birth rate is immigration, specifically from countries where population growth is out of hand, and there are plenty.
I agree 100%. Cutting off the tide of immigrants will severely damage our ability to compete as a nation, and will lessen the supply of workers needed to care for our huge retired population.