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March 22, 2019 | Boomers Now ‘Generation Downsize’

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

I have been pointing out for a few years, that two decades of falling interest rates and rising real estate prices enabled much malinvestment in oversized, expensive-to-maintain homes, that an aging population will want to downsize.  This is happening now.

When the Greenspan-led, US Fed first turned a blind-eye to ‘irrational exuberance’ in financial markets in 1996, the leading edge of the baby boomers (born 1946-1965) was 50 years old, and the majority were already homeowners.

After 22 years of asset inflation efforts from central banks and governments driving boom, bust, and repeated bail-outs of lenders and speculators, the average age of boomers is now 61, and 10,000 are turning 65 every day in America alone.  Meanwhile, safe yields on savings have been moribund for a decade.  Not surprisingly, boomers en masse are now looking to downsize high-maintenance, expensive real estate in favour of smaller, more efficient shelters that are easier to look after and within walking distance of amenities.

There are 73.8 million baby boomers in America alone and millions more in this cohort worldwide.  While they own an estimated 40% of homes today, their ownership concentration in the more expensive real estate is higher.

The next demographic behind the boomers–Generation X, people (born 1965 to 1980)–are an average age of 44.5 today, smaller in number (65.8 million in the US) and less well-off.  (See Just Do The Math).  Most still owe mortgages on their existing homes (bought at inflated prices in the last decade) and have more consumer debt, of all kinds, than any generation before them.

The Millennials coming behind Gen X–born 1981 to 2000, now an average age of 26.5–are today too young, under-employed, cash-strapped and struggling with record debt of their own, to be meaningful asset buyers or investors for the next several years.  Moreover, amid escalating environmental and financial strain, people of all ages are quite rationally becoming more focused on more sustainable lifestyles, spending less and saving more, rather than taking on massive single-family dwellings.

The trouble is, with prices falling and life-clocks ticking, selling pressure is already swamping buyer demand in most markets, and this is likely to worsen over the next decade as more boomers move into their 70’s and 80’s.  For more insight see A growing problem in real estate:  too many, too big houses.

Large, high-end homes across the Sunbelt are sitting on the market, enduring deep price cuts to sell.

That is a far different picture than 15 years ago, when retirees were rushing to build elaborate, five or six-bedroom houses in warm climates, fueled in part by the easy credit of the real estate boom. Many baby boomers poured millions into these spacious homes, planning to live out their golden years in houses with all the bells and whistles.

Now, many boomers are discovering that these large, high-maintenance houses no longer fit their needs as they grow older, but younger people aren’t buying them.

Tastes—and access to credit—have shifted dramatically since the early 2000s. These days, buyers of all ages eschew the large, ornate houses built in those years in favor of smaller, more-modern looking alternatives, and prefer walkable areas to living miles from retail.

Rightsizing will require lower prices and in some cases, a repurposing of McMansions into multi-use dwellings. (See Property markets and the road back to affordable shelter.)  There will be opportunity in this process, but not quick and painless fixes here.  The panic to get into sky-high property and security prices in recent years is now set up for panic in the other direction.  Unfortunately, most have not anticipated this cycle nor prepared in advance.

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March 22nd, 2019

Posted In: Juggling Dynamite

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