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[AFTiger 282]

figure this out.

January 16, 2008, 1:00 pm

Why Baby Boomers May Bust the Housing Market

Think the current housing downturn and the subprime mortgage mess is the worst of the housing market’s problems? Not so, according to a report published this month in the Journal of the American Planning Association.

About to wreak havoc on the housing market are the 78 million American baby boomers who will “retire, relocate, and eventually withdraw from the housing market,” according to report authors Dowell Myers, a professor of urban planning and demography in the School of Policy, Planning and Development at the University of Southern California, and SungHo Ryu, an associate planner with the Southern California Association of Governments.

Using demographic data to show that individuals in their mid-60s tend to sell more often than buy, the authors contend that when boomers — a “dominant force in the housing market” — start reaching the age of 65 in the year 2011, a market shift will occur. Some retirees will be looking to downsize, others will relocate to warmer climes, while others will move to nursing homes, says Mr. Myers. As they transition out of the housing market or look to sell their homes, in some states there will be “more homes available for sale than there are buyers for them.” Home prices will soften.

The “sell-off” will create a sizeable hurdle for the housing market, because as Mr. Myers puts it, “It isn’t money that buys property, it’s warm bodies. If you don’t have enough warm bodies to fill up the space, the space stays empty.”

The report points out that the ratio of those aged 65 and older to working age (25 to 64) adults will increase by 67% between 2010 and 2030, and that when these older adults try to sell their “high-priced homes” to a “relatively smaller and less-advantaged generation” — a cohort whose buying power was diminished through the housing boom’s price increases — there will be more homes for sale.

In some states – namely Connecticut, Hawaii, New York, North Dakota, Pennsylvania and West Virginia – the process has already begun, with sellers starting to outnumber buyers, Mr. Myers says. He contends that the East Coast, particular Maryland and states north, face a double hurdle because there aren’t enough young people to pick up the slack as boomers sell off and because prices are so high that many will not be able to afford these homes.

“In some states like New Jersey, it could be 20 years before prices recover,” he says, explaining that the generational trend is one that could stretch for decades.

On the other hand, he says that in Sunbelt states like Florida and Arizona – where there is a healthy supply of young people as well as a steady influx of retirees, prices could jump back in a period of two years or so, depending on each state’s particular demographics, Mr. Myers says.

The authors suggest that to combat the boomer generational trend, local communities need to limit overbuilding of new housing, put measures into place to retain the elderly in the community and attract young households and immigrant households to local neighborhoods.

Readers: Obviously, any further fall in home prices is going to cause pain for home sellers and homeowners. But ultimately would this price softening be a good thing for young first-time buyers? — Lauren Baier Kim

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[otterinbham 0]

Good article. However, it also depends on whose study you read. Fannie Mae predicts an ongoing need for new housing units until 2020, when the trend begins slowing.

If I were a realtor in the Northern tier of states, I'd retire or cash out now. Because this forecast is pretty accurate about trends. My wife's family is from Indiana, and half of them seem to have moved to Ft. Myers. Personally, I don't see the need for a single new development from South Dakota to Maine in ten years.

The South is a different story, chiefly because the population continues to rise as families continue to have children in numbers higher than the replacement rate. Add the continued economic strength of the region, and you have a sizable inflow of new residents. That and the fact that retirees are picking Alabama, Georgia, and South Carolina to retire in addition to Arizona and Florida.

As the old saw goes, it's location, location, location.