The Baby Boomer Sell-Off
The next potential real estate bubble may be festering in Mountain Brook, Liberty Park, Greystone, Highland Lakes and Shoal Creek.
In the early 1990’s Birmingham got its first gated golf course community and every doctor, lawyer, banker and entrepreneur who could put together $400,000 built a new home south of the city. These folks were a part of the Baby Boomer Generation, the driving force of the US economy sense 1946 when the first of their generation was born.
It’s estimated that 8,000 to 10,000 members of the Baby Boomer Generation turn 65 every day. What is this doing to the real estate market as 70,000,000 Baby Boomers decide to down-size, move to be closer to their grandchildren or to move to the beach?
20.1 million senior households will attempt to sell their homes between 2015 and 2030, the University of Utah researcher Arthur C. Nelson estimates that 7.4 million won’t be able to find people to buy them—an imbalance that could be extreme enough to trigger a reprise of the 2008 panic.
Who’s going to buy all those McMansions in Greystone. Mountain Brook, Liberty Park, Highland Lakes and Shoal Creek, not to mention the for real mansions in Redmont?
Oh, maybe some Gen X’ers will move on up and buy those houses; probably not. Most Gen X’ers are already settled, many of the cohort (loosely defined as those born between 1961 and 1981) are plateauing in their careers, have been hardest hit by the economic downturn, and now have the financial stress of growing kids.
Erik Carter of Forbes, “a recent census report found that people between 35 and 44 saw a 59% decline in median household net worth between 2005 and 2010, the largest drop of all age groups.” That means little home equity, limited assets to put toward move-up down payments and a stay-put attitude.
In the 1980 the median net worth of a household headed by someone under 35 was $15,260 while for a household headed by someone over 65 was $120,500. You’d expect this 10 to 1 wealth difference because of earning power and savings. But as of 2013 that gap has grown to 20 to1. The older household now has $210,500 in wealth compared to $10,500 for younger households and all indications are that it’s growing wider.
Millennials, won’t they be the new buyers? They’re saddled with record debt,. The average size of a student’s debt has tripled over the past decade with recent graduates carrying an average of $29,000. go to bestofUS Homes.comThat equals –$1 trillion student load tab according to the Wall Street Journal –and they’re stuck in a flat job market. A recent survey showed that 71% of graduates will delay any home purchases by five years because of debt.
Home ownership rate of households under 35 has fallen to 34% from 43%, the lowest in 30 years.
Millennials also have a shifting set of attitudes around big-ticket purchases, as well as an evolving attitude toward ownership in general. Home ownership among 25- to 34-year-olds has dropped more than any other age groups from 2006 through 2011. So to them, what does “owning” even mean anymore?
Finally, bigger houses aren’t even what younger buyers want. Average home sizes are now, after decades of growth, shrinking. For Boomers, waiting to sell is disappearing as an option. They need to get out of their houses now, or they need to start thinking differently.
Demographics will further complicate this picture. We’re moving toward a future in America when minorities will become the majority. But given entrenched educational achievement gaps, particularly for the fast-growing Hispanic population, Nelson fears that the U.S. is not doing a good job educating the “new majority” to make the kinds of incomes that will be required to buy the homes our seniors have already built.
As the Hispanic population expands, and more baby boomers retire, the gap between the two groups in the housing market – expressed in un-sellable houses – will only widen.
“That’s going to hit us,” Nelson says. “Not right now. But my guess is that about the turn of the decade, that number will become a real number. It’s only a few percentage points now, but it’s like a glacier, and if it keeps moving and building and growing, it’s going to be a big number in about 2020.”
Roughly 7 percent of over-65 home owner’s move each year, and as people get older, their likelihood of moving from owning to renting gets higher and higher (it’s about 79 percent for households over 85). By 2020, there were will be around 35 million over-65 home owners in the U.S. That year, Nelson calculates, seniors who would like to become renters will be trying to sell about 200,000 more owner-occupied homes than there will be new home buyers entering the market to buy them. By 2030, that figure could rise to half a million housing units a year.
“Between changing preferences and declining median household income because of poor education – because we’re not willing to spend money on education,” Nelson says, “that means we can predict the next housing crash, and that’ll be in about 2020.”
Baby boomers will be left to “age in place.” That’s doable from age 65 to 75 for most but after that they can’t tend to their yard or keep the house up. Most of them haven’t saved enough to get themselves through retirement. They’ll start to need caregivers which they won’t be able to afford; they were counting on selling their home to get through retirement. They’ll get a reverse mortgage, did you say “another banking crisis.”
By 2030 our luxury communities will be littered with abandoned homes; foreclosures will become a part of the luxury home market.
So what are the Baby Boomers to do?
They need to sell their homes now while they still can and to do what they’ll need to market their homes. They’ll need to take advantage of all of today’s marketing tools; specifically the Internet, Facebook, Youtube, Instagram, Pinterest, Houzz, Zillow and Trulia. Video needs to be added to the photographs, the idea is to make it easier for the buyer to make a decision.
One local real estate agent has recognized this change in demographics and marketing techniques and has launcher a website to meet the changing demand for selling luxury homes. Kerry Grinkmeyer of Best of US Homes believes that luxury homes have to be sold like luxury cars.
“The buyer has to fall in love with the home before they walk through the front door and it has to be made easy. I see the days of spending weeks driving around the city looking at homes is quickly being replaced with videos projected on a 80 inch screen while sipping Champaign. She’ll forward four Youtube videos to him and they’ll make their purchase after walking though two homes. It all there we just need to bring it all together.”
Before you sign with any agent you need to read Best of US Homes Luxury Home Report.
Kerry Grinkmeyer is a real estate agent in Birmingham, AL specializing in the marketing and sales of luxury homes. Kerry's a retired financial advisor, he sold his firm, one of the largest in the Ameriprise Financial Advisor system in 2005 to his son, daughter and nephew. Now he's building one of the largest boutique real estate agencies that he'll eventually sell to his grandchildren. He the author of the children’s book The Christmas Web- A Family Christmas Tradition. Kerry competes in the Senior Olympics in to 50M, 100M and 200M dash as well as the 5k and 10k time trial cycling events.
Kerry offers you his financial background, knowledge of the community, love of business and family and energy to assist you in one of the most important financial decisions you'll make in your lifetime.
205 919 6006
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