As baby boomers retire, many of them will choose to downsize. They’ll move from their often larger, single family home into a smaller home, condo or apartment. This will prove disruptive to the housing market — disruptive for a very long time.
Born between 1946 and 1964, the 78 million baby boomers have, throughout all of their lives, had an enormous impact on our economy and our society. As children, they impacted the need for classrooms and teachers. As older teens, they impacted the need for automobiles and parking spaces on college campuses. As young adults, they impacted the growth of the job market. And the growth in consumer spending. And credit card usage. And housing development.
Housing development? Hm…is it possible that, as the baby boomers retire, many of them would choose to downsize? And if so, might some of those very large baby boomer homes (they sure like those larger homes, don’t they?) go looking for a buyer? Might the supply of larger homes actually exceed the demand? And therefore, might the law of supply and demand suggest that the prices of larger homes experience downward pressure?
Some might argue that the population of America is still growing in spite of the maturing of the baby boomers, that our country has lots of children, teens and young adults. And indeed it has. But consider whether those children, teens and young adults will be able to afford the larger homes made available by the aging baby boomers. Many of those children, teens and young adults are immigrants or children of immigrants. They’re new enough to America that they haven’t yet risen to the economic level where they can afford to purchase a home — especially a larger, baby boomer home. At least not at current (albeit recently reduced) price levels.
Sure, immigrants to America earn more and more money, and achieve higher levels of home ownership, generation by generation. But here we’re talking about generations, not the next few years. If immigrants to America are, any time soon, going to purchase a home (especially a larger, baby boomer home), then the price of that home is going to have to drop — likely by quite a bit.
Well, what about the children of the baby boomers? Can’t the next generation of upper-middle class Americans purchase those larger, baby boomer homes? That’s an interesting question to which I think the answer is “no.” Sitting in the barber shop, just the other day, I heard that same conversation I’ve heard so many times before. One fellow said to the other, “My son and his wife are both working at good jobs, earning good salaries, and still they can’t afford to buy a home.”
Thanks to the baby boomers’ enormous bulge in population (plus our adoption of the two income household, plus some pretty clever financing), we Americans have populated our landscape with millions of large, high priced homes. Bulge in population, two income households, clever financing…hm…what’s our next trick? Seems we’re out of tricks. I think that the price for larger homes will experience long-term downward pressure.
How long? Well, let’s see — the youngest baby boomer, born in 1964, is now 47-years-old. I suppose that the long-term downward pressure on prices will end when that youngest baby boomer is about 70-years-old. That will happen in 2034, more than two decades from now.
That’s what I think. What do you think?
