Monday, June 23rd, 2008 at 1:03 PM
Baby-Boomers and RE
It seems a day doesn’t go by without hearing a baby boomer say,
"Sell my house? I’m going to wait until the market comes back."
We’ve already identified that the neg-ams mortgages that will be resetting over the next three years will be creating havoc for those sellers waiting for higher prices. But what will happen in 2010 or 2011 once the reset wave concludes – will the market just magically "come back"?
There are 76 million baby boomers counting on two things to get them by: social security, and the equity in their house. But what will happen as 76 million boomers try to sell over the next ten or more years?
From Wiki: "In contemporary economics, Harry Dent has popularized the baby-boomer age-wave theory. According to him, as a result of baby-boomers retiring, the US stock-market will peak between 2007 and 2009. This prediction is based on his observation that consumer spending peaks near age 50. Some experts expect the worst consumer recession since 1980 as aging boomers start retiring, adding to rising unemployment, decline in house values, and declining stock prices. However other experts have suggested that immigration to the US and rise of emerging economies will offset the demographic impact."
The other common assuption among boomers is that real estate always goes up in the long run. It might, but this could be a very long run, and how old are you? Do you have the time to wait it out?
A guy I met yesterday while doing open house mentioned the 3,500 sf house in Redlands they were trying to sell. He said he didn’t have much of a loan on it, but had already moved to Carlsbad and hoped to get rid of it. They had it listed last year for six months, but no sale, and they’re on a six month listing currently. The list price? $850,000.
I told him I could solve all his problems – just lower the price to $699,000, and if that didn’t work, keep lowering. No way, he said, he’ll wait.
I hope he is reading this – there are 75+ million boomers thinking just like you, and they’re all going to want to sell in the coming years – who is going to buy that many houses, for more money than what you could get today?
Don’t forget to factor in declining health – if you wait too long, and end up either needing the money for health care, then you’ll be forced to sell in whatever market there is that day.
My Dad had a stroke two years ago, and thankfully he and my Mom saw that moving into a one-story house about six months prior was a good move – it saved a load of problems since. (Pops is doing great, by the way).
Boomers – Move now while you still can, and while you can still get, as much as you can get today.
Posted on Monday, June 23rd, 2008 at 1:03 PM in Thinking of Buying?, Thinking of Selling? | 55 Comments » | 
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Jim,
Best post ever!
Boomers, either get out now or people like me are going to kick you out. The younger generations have no sympathy for you. Gen X in particular is beyond pissed. Not only will we have to support your lazy asses into retirement we’ll have to buy your inflation and bubble enhanced assets.
Boomers are a generation that "drugged out" under the hard work of their depression era grand parents and ww2/korea era parents. You brought the "feel good/personal enlightenment" 70′s and finally morphing into the "lets make money off of other people’s money" 80′s. Cracks started to show in the 90′s and now in the 2000′s you are screwed.
Simply put boomers are the most undeserving, entitlement driven generation the world has ever seen. And now everyone else is going to have to clean up your mess.
shadash | June 23rd, 2008 at 1:57 pmWell, it really depends a lot on where you live. If baby boomers are defined as persons born 1946 – 1964 (when the pill became widely used), then the first graph on this page does indeed show there are more of’em:
http://www.nationalatlas.gov/articles/people/a_age2000.html
In 2000 when this graph was made, the youngest boomer would have been 36.
The 35-39 age group had 11 million while the 30-34 age group has about 10 million. About 10% fewer people to buy houses in the younger age group.
But regional populations shifts can more than make up for that difference. I know SD county loses population in downturns, but the long term trend is for our county to grow – and that will continue to be the case in the long term.
jb | June 23rd, 2008 at 2:11 pmYour own example contradicts you. The guy you met plans to sell his house in Redlands and buy a house in Carlsbad. Net effect for coastal San Diego County: +1 buyer.
Next 10 years we’ll see a massive boomer-driven housing boom along the coast. Existing boomers aren’t going to sell, they are going to hold onto their prop-13 houses till they die, and a lot more will come from other counties and states.
SD Scientist | June 23rd, 2008 at 2:23 pmJim,
I just came across your blog — excellent post and you touched on something here.
"The other common assuption among boomers is that real estate always goes up in the long run."
From economic historians that we studied in college, peak earning years are in the late 40′s, creating more buying power.
Consumer spending from Harry Dent’s age wave theory peaks at around age 50.
Put the two together with the consideration of the wealthiest demographic hitting the retirement years and it explains a lot.
Throw in the wild card of the lax lending standards and high inventories we are now dealing with….
Paul Francis | June 23rd, 2008 at 2:39 pmFor that one boomer that is moving to SD there are 10 others that plan on moving to Idaho or some other far flung location. Nearly all of the engineers I work with (in the OC) are planning of bailing out of SoCal when they retire. Many of my ex co-workers have already done so. Honestly, I don’t know a single person that I work with that plans on staying here when they retire. I’m thinking of Utah for my "golden years", but that’s a couple of decades away still.
golfproz | June 23rd, 2008 at 2:48 pmDoes everyone think San Diego will become a big Santa Barbara? You know; "Home to the newly wed, nearly dead and their gardeners." The real killer is the huge eflux of retired civil servants who will leave and take their massive benefits with them to pump up some economy elsewhere. CalPERS needs to return 7.75% per annum to remain liquid. Last year they did 19% but near as I can tell they might be actually losing 8-10% now. That is not good. 100 becomes 119 drawn down to 111 losing 9 to 102 drawing down to 94. See? CalPERS will have to sell some assets this year at the worst time which in turn creates its own investment weather. Anybody remember the investment banks of last summer?
Watch the municipal retirement numbers.
Rob Dawg | June 23rd, 2008 at 4:06 pmOne observation I can make is that friends in my age group (I just turned 60) are NOT taking early retirement as I was able to do. They are all now planning to work at least 5 more years than they thought . . .and those few who have retired are taking part-time jobs. I think mobility will not be as easy for the boomers as they thought.
I agree with another poster here – some people have "cashed out" of California and moved to cheaper places . . .some in the Midwest, some to Idaho, etc. My relatives in Ohio might like to move to San Diego, but their 200K "mansion" there would not buy more than a one-bedroom condo here. . .with prices tanking in Phoenix, Las Vegas, etc. where will all the "move-in" people come from now that loans are real and require a downpayment??
Mark in San Diego | June 23rd, 2008 at 4:12 pmHey Rob Dawg:
I almost always enjoy your comments, but a bit more English and a bit less jargon might be helpful to those of us more intermediate readers and bloggers.
THANKS!
Jasper Lamar Crabb | June 23rd, 2008 at 4:20 pmDuring the years boomers reach retirement age you can probably expect home prices to rise in places they choose to retire to at the expense of home prices in places they retire from, unless those places have economies that attract new people to fill the jobs boomers retire from. Ultimately, the places that will suffer most are those where boomers take retirement not because they choose to, but because their jobs disappeared close enough to retirement for that to be an option. At one time SD County was in the "retiree destination" list for many people living outside the area, but with the higher cost of living and added congestion resulting from the past decade, the fact that most of the jobs "created" here during that period have turned out to be smoke and mirrors and the increasing frequency of warnings about potentially elder-lethal heatwaves we’ve been seeing, I wouldn’t count on that for the future.
OTOH, a prop-13 house with no mortgage can be one hell of an anchor; shadash may have a lot of foreclosed homes formerly owned by overextended 30 and 40-somethings to choose from in the next few years, but my guess is if he wants boomers’ houses he’s probably going to have to buy them from their estates after the boomers have been carried out in boxes.
GeneK | June 23rd, 2008 at 4:31 pmShadash, I echo your sentiment. I am Gen X myself (a tiny gen of 17 Million) Compared to 76 odd Million self centered and greedy generation in history of mankind- called the boomers.
This gen has ruined America. I feel everyday is a loosing battle with these people. Why? we are so overwhelmingly out numbered.
I have boomer friends and relatives and I can not relate to one word they say, their behavior. They only live for themselves.
NKC | June 23rd, 2008 at 4:32 pmAlthough this is not an economic blog, boomers have to realize that this is not just a housing problem, but a "great credit unwinding" of all types of financial instruments. Investment banks today are starting to lay off thousands because there is "no business." We are seeing a restructing of credit which has implications way beyond the price of a house in SD or elsewhere – the lower dollar means higher import prices (oil and food), and people are making lifestyle adjustments. How this plays out is not very predictable at this point – buy if people are waiting for housing market to return to 2006 levels, they may have a long long wait, and like Cisco Stock which went from 70 to 9 and is now only back to 26 – it may never recover in our lifetime.
Mark in San Diego | June 23rd, 2008 at 4:39 pm"One observation I can make is that friends in my age group (I just turned 60) are NOT taking early retirement as I was able to do."
For my dad and many of his contemporaries, "retirement" very quickly became a synonym for "waiting to die." I’ve seriously considered delaying my own retirement for as long as I can, and continuing to take on either part-time or occaisional temporary work after that whether I need the money or not.
GeneK | June 23rd, 2008 at 4:41 pmHear it from a guy on the front lines.
There is an overwhelming desire for boomers to downscale. I hear it all day long: scale down, scale back, leave town.
Know any boomers looking for a bigger home? Me neither.
Even if they think they don’t need the money, and can stay put until they die, just the normal maintenance of a house will be a burden they’d rather do without.
How to take advantage:
Invest in one-story condos.
Jim the Realtor | June 23rd, 2008 at 4:51 pmInvest in or own retirement facilites/assisted living.
Build a tent city out in the boonies.
My recollection of our home search last year was that the McMansions (especially the distressed ones) were all being sold by people in their 30′s and 40′s, while people my age and up all had more modestly sized homes that someone retired ought to be able to handle right up to the point where assisted living becomes necessary. Are there any statistics that track the ages of people who bought various types and sizes of homes?
GeneK | June 23rd, 2008 at 5:10 pmIf money was not the issue, where would you want to retire?
- Ohio
- Utah
- Coastal California
Of all Coastal California, San Diego is probably the most affordable "nice" area.
Boomers may be downscaling but no one is going to downscale to a shopping cart. And prop 13 is a powerful argument against downscaling.
SD Scientist | June 23rd, 2008 at 5:48 pmBoomers played a large role in "ruining America" by failing miserably at the job of parenting. Boomers were the first generation in history to follow through on the threat that children have made since the species began to not make their own children do what their parents made them do, and it shows.
GeneK | June 23rd, 2008 at 5:55 pmI’m not sure that the person Jim quoted to start this discussion off (the one who wanted to wait before selling) is making a rational economic decision. Has he considered the lost opportunity costs of having an extra half million dollars sitting in his bank account? (I’m assuming here he owns practically all the equity on his house, as he said the loan was small.) Even with super-conservative investing, that’s a good $25K/year in interest. Use it to go salmon fishing in Scotland, attend a cooking school in Tuscany, or get front row seats to the Super Bowl. Better than that money sitting on a lot somewhere, growing weeds.
Once you add in cumulative inflation by the time he sells, the likelihood of flat or worse markets for a year or two from Alt-A indigestion, insurance and maintenance costs it becomes a hard argument to keep a place "waiting for the market to come back up".
Maybe the take away argument is that housing has a very large psychological component that objectively, perhaps, makes no sense, but still is there.
Dwip | June 23rd, 2008 at 5:58 pmCan’t people who are over 55 sell and buy a second home of equal or lesser value and transfer their prop 13 tax rate? I believe this is the case. If so, this is another factor to consider.
loharp | June 23rd, 2008 at 6:07 pm"I’m not sure that the person Jim quoted to start this discussion off is making a rational economic decision."
I’m pretty sure he’s not. His response might make some sense if the house was in La Jolla, Del Mar or Big Sur with a panoramic ocean view, but the house is in Redlands.
GeneK | June 23rd, 2008 at 6:24 pmSo many variables over so much time…
It is difficult to separate the effect of the housing collapse from future pricing. This is one of the mistakes of those who are going to hold out. Lenders for the next decade or so simply will not loan people money to buy a home that exceeds conservative comps.
When prices begin to increase again, they will do so at roughly the rate of wage inflation. In other words, people who are holding are locking in losses. Period.
As comments here make clear, there is to be a tug-o-war between the benefits of staying put (prop 13) and the imperatives of retirement (no insurance? hip replacement?). Let me suggest that the biggest effect will be a substantial decline in the VOLUME of sales in the next decade, compared with the last. Those baby boomers who do not need to sell to finance their retirement will hold tight. Those who do will face disappointing prices in real terms, since buyers will also be relatively scarce. Realtors in particular will be unhappy with the situation. We had a huge increase in sales volume. Everyone who wanted a house (except the bubble bloggers) bought. Now, with crashing prices, the bottom of the pot will be scoured for buyers. There will be a long hangover with low sales and low prices.
In 15-25 years, there will be lots of houses sold by estates as we pry properties from the cold dead hands of the boomers. The volume of sales will go up and real prices may even increase as people will have forgotten about the consequences of musical chairs in real estate. But whether this occurs will depend on a resurgence of the SD economy, and that is just too far away to tell.
To sum up, boomers have already had the effect on real estate that they are going to have. Everyone in that generation is either pump and dump, or pump and chump. The next decade will see little demand and probably little supply (once we get through the current glut). Beyond that, it is more economics than demographics.
Rational expectations
Rational expectations | June 23rd, 2008 at 6:57 pmcurrently the lowest priced 3500 sqft home in Redland is priced at $376k. while there may certainly be neighborhood variations let alone house to house variations, perhaps the boomer in question can enlighten us as to why his house is almost 1/2 million dollar better than other 3500 sqft homes in the city?
ocrenter | June 23rd, 2008 at 7:19 pm"Everyone who wanted a house (except the bubble bloggers) bought."
I think this comes close to the situation before the bubble began, except that then it was "everyone who wanted a house and could afford it" had bought, and except for the lowest end starter homes and condos, home sales typically involved someone selling a home and buying another, either to move up or, more commonly, just to move for some other reason (job change, marriage, divorce, death, etc.). Then came the bubble, with its massive number of homes built and sold, to a great extent to people who had previously not been able to afford to join the homeowner club (and, as it turned out, still couldn’t really afford it).
How this is going to affect current homeowners probably depends a lot on how long they’ve been homeowners. If you bought decades ago and resisted the temptation to use your house as an atm, you’ll watch your house lose all the monopoly money gain it picked up during the bubble (and maybe some more, considering all the excess inventory built during the bubble); if you’re a more recent new member of the homeowner club, you’re going to lose real money for a long time to come. And those who didn’t buy still fall into two groups: those who can afford to buy and those who can’t. I’m not sure how much effect being a boomer has on where one is in this, except of course that if you’re a boomer you’ve had more time to have owned a home for decades.
GeneK | June 23rd, 2008 at 7:33 pmUngh; this whole conversation is based on a fallacy. The boomers DO NOT represent an overwhelming number of people compared to any other 10 year age group. This WAS true when they showed up in this world. Unfortunately there were so many boomers that despite them having fewer kids per child-rearing woman than their parents (that is how they get their name) they bred so many damn kids that the population problem has continued ever since.
Look at a distribution of the population and it becomes quite clear. From 60 years old and down the 10 year age groupings are relatively equal. The groups 70 and above are the ones that will increase significantly in size as the boomers get there.
The biggest problem boomers have created (other than selling out on their social revolution and not leading the environmental cause soon enough) is clogging the job market at the top. This is mostly due to longevity increases by the medical field (need to work longer to afford living so long), but in my opinion it is also due to greed (they don’t want to let go of power) and increased living standards (they got it by the natural course of history and have higher expectations as well).
It seems to me that with the economy tanking, the financial situation is going to push boomers into working even longer. That is, their IRA, 401K, etc. are all not worth as much as what they thought it would be [in the future] when they started counting their eggs five years ago. So either this will force them to stay in their "free" house (no mortgage that is) longer or force them to seriously down-size (that is they can’t afford anything else but rent on a small apartment); but either way, there should be plenty of people to take their house. The population is increasing at a phenomenal rate; so unless ‘people per house’ goes up (something others have predicted) significantly than there will be plenty of others to buy the house of the boomer.
I think the real interesting thing that is going to happen is when boomers actually "retire" (whether by choice or force) the unclogging of the job market is going to make for a lot of openings at the top. There will likely be an interesting tipping point where the younger ones get enough power to actually run the boomers out (under the auspices of getting rid of stodgy thinking). There will be a potential issue of losing institutional knowledge but I suspect it will be Gen X who will take the jobs first and won’t care about the loss.
So I am doubting that the retirement of the boomers will have any major affect on the housing market. Probably directly affect the financial market which may indirectly affect the housing market through the credit markets, but nothing to really worry about.
Keith Rettig | June 23rd, 2008 at 7:49 pmloharp- It’s prop 60 or prop 90 if the properties are in different counties within California. A one-time deal where the sold property assessed value is transfered to the new property provided certain conditions are met-equal or lesser value, title holders- 55+, owner occupied, all I recall off the top of my head..
Just a Broker | June 23rd, 2008 at 7:51 pmNearly all of the engineers I work with (in the OC) are planning of bailing out of SoCal when they retire. Many of my ex co-workers have already done so.
Golfproz, I see the same thing. Money is THE issue. Too many cannot afford to retire in state due to the overspending on both houses and other consumption.
SDScientist:
Would I rather retire on the coast? Heck yes. Maybe that is why so many of my coworkers are retiring to Costa Rica. Will quite a few retire in Costal California? Sure. But not enough to maintain these property prices.
Can’t people who are over 55 sell and buy a second home of equal or lesser value and transfer their prop 13 tax rate? I believe this is the case.
Yes.
Got Popcorn?
Neil | June 23rd, 2008 at 8:07 pmNeil
This argument makes sense, and some hedgies like Peter Thiel have said that not just real estate but stocks, etc. will have negative real (inflation adjusted) returns over the next 25 years. I just can’t convince myself that it will be the case. Its such a huge macro level call.
CA MLS | June 23rd, 2008 at 8:42 pmIt’s interesting that so many people think "it’s ok" boomers will just move somewhere else and "be fine".
It’s also interesting that so many people think that prop 13 is going to keep boomers in their houses.
I have news for people…
Prop 13 only keeps you in your house of you’ve
1. Paid it off completely
2. Can afford the mortgage payments
That being said every little bit helps (regarding taxes). But, what I’m getting at is…
How many home owners were seduced into refiing their house?
How may took out second’s to finance a cruise around the world? Or pay for a child’s college tuition? Maybe buy a new SUV? Credit Card debt?
The list goes on and on. But the reality is that you can only live on credit for so long. Eventually the tab’s get called in. If you can’t pay the debt you can’t stay at the party.
shadash | June 23rd, 2008 at 8:54 pm"How many home owners were seduced into refiing their house?"
Frequently refiing boomer here. On average, about once every 3-5 years or so since buying first house, but always done for purposes of reducing interest rates (not expecting to be doing that again anytime soon, though).
Prop 13 is unlikely to do much for us because we’ve moved over the years, but if we decide to stay here after retirement there’s enough savings in reserve to handle the mortgage (either by paying it off or just continuing to make the monthly payments).
Having been raised by frugal Depression-survivor parents who paid off their home prior to retirement, mortgages are not a thing to be toyed with, except if doing so will reduce total costs or if some kind of catastrophic event hits (taking a cruise or buying a new car more often than once every 10 years or so is *not* a qualifying "catastrophic event").
GeneK | June 23rd, 2008 at 9:56 pmBTW, the "baby boom" lasted 20 years, from 1945 until around 1965, and there is something of a "sub-generational" split within it. "Early" 1945-55 boomers, raised on our parents’ vivid memories of growing up in the Depression, tend to have a rather 1930′s-40′s view of the world, compared to "later" 1955-65 boomers, whose parents were babies in the Depression and don’t remember it. I’m in my 50′s, and boomers 10 years younger seem just as alien to me as Gen X’ers.
GeneK | June 23rd, 2008 at 10:08 pmI actually admired these folks. If you know how tough it was to buy a house back then (in the 70s-80s), you’d be amazed how can anybody even pay for their houses. When my parents bought their house, the interest was like 12%, they need 4 co-signers on the loan docs, they were making next to nothing. I remembered we only had 1 car and mom made us walk w/ her to the grocery to save gas money. We hardly went to movie, ate out, or had any vacation. They both worked extra jobs to pay for their mortgage. Since the house got paid off long ago, I don’t think they will move anywhere because they love where they live (coastal OC). Old people tend to grow attached to their house (memories, familiarity) and unless they get to the point where they become non mobile they don’t like to move.
BTW, people who are born in 1945 are only 60+, still pretty young. I don’t see these folks as in need of assisted living housing. My parents are 65-70 and they drive every where, do everything. They have a single story so they don’t need to move.
Shadash: If you want to kick a boomer out of his house, I think you’d have to wait a long time – maybe 20+ years when they are dead.
My brother bought his houses in LA, both times via probate. Both times the owners died in the houses where they’d lived for the last 60 years!.
housebuyer | June 23rd, 2008 at 10:50 pmI seem to remember reading a while back that people 65-75 (who actually aren’t boomers) and single women boomers were the groups most likely to have subprime mortgages. If shadash is determined to throw some older person out of their home there might be some opportunities there.
GeneK | June 23rd, 2008 at 11:30 pmI’ll get one of you boomers soon. It’s just a matter of time.
Like a lion staking a heard of wildebeests. Eventually someone is going to screw up.
shadash | June 23rd, 2008 at 11:41 pmHousebuyer, my neighborhood is the same way. It almost seems someone has to die to get a house there or a flipper got to it. Most of my neighbors have been there since it they were built in the 40′s.
Same neighborhood as Jim’s office.
Shadash, you so crazy
Jason | June 24th, 2008 at 12:13 amAre today’s McMansion-era younger buyers really interested in the relatively modest homes we boomers put up in the 70′s and 80′s, or the even smaller ones our parents put up in the 40′s-60′s? I have a sneaking suspicion that most Gen-X and Gen-Y buyers will prefer the houses they get by eating their own.
GeneK | June 24th, 2008 at 1:32 amWildebeast? More like Spamalope. Watch your cholesterol.
Rob Dawg | June 24th, 2008 at 1:54 amGeneK: You are right about that.
When my parents pass away (in another 20 years) I will be moving back into their houses and sell our McMansion to Shadash 
J/K
housebuyer | June 24th, 2008 at 2:46 amSuch venom, such humor; can’t we all just get along. It seems like the baby boom generation has had an outsize effect on everything it has touched throughout the arc of its existence. Its retirement will be the same. Oh and old people vote. I doubt Medicare part D is going anywhere.
Personally I’ve seen no compelling evidence that most people move when they retire, except when they were in govt service or the military.
The question that interests me about boomers is how will they play the arbitrage game? Will the move en masse to low cost low tax states? Those states also tend to have the worst health care systems, don’tcha know.
Barnaby33 | June 24th, 2008 at 3:08 amAlmost all of my parents’ generation in my family moved after retirement, some just to the nearest assisted living home, others all the way across the country. It wasn’t necessarily a "cash in the house to live on" sale as much as a "do we really want to live here if we don’t have to in order to have work or a business?" I think I’ve done a bit better than my parents in living places that might be suitable locations for retirement, but who can predict what a place is going to be like 10 or 20 years into the future?
GeneK | June 24th, 2008 at 3:33 amI’ve seen no compelling evidence that most people move when they retire
True, but like you mentioned, we’ve never had a generation like this. Previous generations didn’t have the high medical expenses that today’s elderly are facing, and the social security won’t go as far either.
Combine that with the likelihood of a remaining mortgage and a house in need of repair/maintenance, and it’s going to be less comfortable to remain in the old homestead until death. It’ll cost too much to stay alive, and the government won’t be there to help much.
Those in their mid-60s and older might get by, but those in their 50s will face a steeper mountain.
Jim the Realtor | June 24th, 2008 at 3:53 amI tend to think the generational change issue is overblown. Anything we predict will be altered by events each year as the wave of boomers retire. Some will work a little longer if they can’t retire on the house; some will move; some will downsize in the area; some will hold on because of prop 13. Whether you are a boomer retiring in a down stock market or a peak will no doubt have effects. I strongly discount macroeconomic predictions, particularly of the type Dent suggests.
Prices will come down, barring a few more points of inflation for the next 5 years, because prices are not affordable for even the top 10% of income earners. As Jim knows (too well), I’ve looked at alot of houses and haven’t yet committed what it takes to buy them because, when I look at renting vs. buying, I just haven’t yet seen a compelling value.
I earn a alot relative to some folks. Certainly enough to afford (actually afford–not "afford" in 2006!) a million dollar house. But when I’ve looked, I can’t get myself past the $500K figure, and then I don’t tend to like what I see (yet) in that range and below. The value just isn’t there. And perhaps I’m strange, but as long as I’m in a safe neighborhood in a house I like, it has come to surprise me after renting a while that I’m not terribly concerned about the "socio-economic" signal I send by living in a home that’s modest for my income.
What’s important to me is to be near my office and in an area near friends and the types of stores and other amenities that make my life easier.
If boomers, or any one else thinks that prices will continue to rise, barring inflation, for the next 10 years, you’ve got to just ask: who will buy them? Yes, I hear one answer: other retirees with sufficient assets and a yen for the coast. Maybe. But not if they feel like me, don’t find the value there, and decide coastal Oregon or a nice ranch in Northern Arizona, or a place on the water in Texas, seems better at 1/5 the price.
If the single guy with the mid six figure income would prefer to be a renter and spend the difference on his 401(k), vacations, and non-housing consumption…maybe you should rethink your answer about who will buy your $900K Carlsbad tract home.
I’m not counting on boomers moving or any other big generational change. I just don’t care. I keep my eye open because until 2006, I have always owned real estate as a hobby and investment, and so I probably spend more time thinking about it than a renter should. I like real estate–I like to see property come out of the ground; it’s a sign of civilization and there’s a certain spiritual kick I get from seeing development. But as for buying it again, I will do so for investment when the cap rate makes sense relative to my alternatives; as for my residence, my premise is that when and if I see a property that motivates me, at a price that seems like a good value, I’ll buy.
And, naturally, my urgency may change if ever I become a not-single guy and nesting becomes a greater enticement.
lgs | June 24th, 2008 at 4:19 amlgs: talk like a true single guy. Wait ’til you are married w/ kids, the wifey will nag you to buy ’til you die. And once the kiddos are at school age, you’ll find yourself crawling into Carmel Valley (or equivalent school district).
Homes are for keeping your family, not your money.
housebuyer | June 24th, 2008 at 5:15 amHousebuyer: there’s certainly something to that, except given how much I hated my early school years, and given what I think of even good private schools, I doubt the district will be my motivating factor.
If I have children, which is still an open question since I have to first find the type of partner with whom I’d want them, I’ll gladly pay through the nose for a good montessori school when they’re young and a tutor or other nontraditional education as they age.
With due respect to the good teachers out there who may be reading this, I am less than sanguine about the state of education–even at "good" schools today.
lgs | June 24th, 2008 at 5:55 amJim, do you see Prop 13 and capital gains taxes as contributing factors in the reluctance to move? Here in Santa Clara County, if you ignore the hot and cold stretches, the overall number of sales has declined dramatically over ten years as empty nest boomers have decided to hang on to their low property tax basis and put off capital gains taxes. Should the government do something (capital gains exemption if held for 15 years) to free up more housing which should, in theory, reduce the cost of housing for everyone? Are we not painting ourselves into a corner of reduced sales irrespective of current market conditions?
Frank Jewett | June 24th, 2008 at 8:01 amI think the reason Prop 13 acts as an incentive to stay for today’s retirees who have owned their homes for a very long time is the small number of counties that have signed on to Prop 90. Most of the counties that participate are places people might retire from, and there are very few that people might find better places to retire to than where they live now. For those who have not owned for a very long time, downsizing to a less expensive home is going to lower their property taxes, which will become an incentive for future retirees to move.
GeneK | June 24th, 2008 at 2:51 pmGeneK,
I think you’re forgetting one part…
To downsize in retirement you need to SELL your current house. If nobodies buying at the price you’re selling at downsizing isn’t going to be possible.
shadash | June 24th, 2008 at 3:08 pm"If boomers, or any one else thinks that prices will continue to rise, barring inflation, for the next 10 years, you’ve got to just ask: who will buy them? Yes, I hear one answer: other retirees with sufficient assets and a yen for the coast."
Actually, the first thought that crossed my mind when I read this was overseas investors from countries whose currencies have been rapidly gaining buying power compared to US dollars. With homeowners of all ages continuing to resist new "affordable housing," I can see the low-end rental housing market of the future becoming all those small houses of the late 40′s and the 50′s, operated by management companies working for overseas investment groups that even now may be waiting for the market to hit bottom, and the effect this will have on the desirability of these neighborhoods vs neighborhoods where homes continue to be mostly owner-occupied is predictable. We have yet to see all the ways that the subprime housing bubble may eventually impact this country in the long term.
GeneK | June 24th, 2008 at 3:12 pmNo, I’m not forgetting that part. The people who will be able to sell on retirement, move somewhere else and buy another house will be those whose houses are worth more than houses in the destination location (they’ll be comparing the price they can get to the price they’ll have to pay where they want to go). Everyone who can’t do that is not part of the downsizing discussion because they’ll be retiring in place, and you’ll have to wait for your chance at their houses until they die or have to go to assisted living/nursing homes.
GeneK | June 24th, 2008 at 3:59 pmSo you’re admitting that prices will go down (less demand from buyers) where boomers with lots of $$$/equity are selling.
And prices will go up in lower priced areas (more demand from buyers) where boomers with lots of $$$ are buying.
That all makes sense. At least you’re admitting that prices will go down in areas that boomers are looking to "cash out".
You’ve also indicated that the buyers of boomers overpriced property assets will be foreign investors. Or professional property investment groups.
Personally I think the rich foreigner buying everything is reaching at straws.
And professional investment groups are already buying whatever they can to turn a profit. But with banks being more strict with the $$$ they lend out it’s getting harder and harder.
The one ray of hope here is that GeneK (even though indirectly) is finally starting to admit that prices will go down.
Congratulations!
shadash | June 24th, 2008 at 4:38 pmI think lgs would be smart enough to find a wife that will not nag him till he buys. Why can’t he rent a home for "keeping his family"?
now_a_renter | June 24th, 2008 at 5:08 pmI’m married with kids, sold near the peak and now enjoy renting in a community with excellent schools and love not being shackled to a mortgage/physical location. I doubt he’ll have a problem finding a significant other that shares his same economic views.
"So you’re admitting that prices will go down (less demand from buyers) where boomers with lots of $$$/equity are selling.
And prices will go up in lower priced areas (more demand from buyers) where boomers with lots of $$$ are buying."
Whether prices will go down in places retirees sell and move from will depend on whether their jobs are being eliminated or if their former employers are hiring replacements. People who aren’t retirees yet will always move to where the work is. Is that SD County, post bubble? Don’t know, but I have my doubts.
Prices are almost certain to go up in places retirees tend to move to. History can provide numerous examples of sleepy little towns undergoing population growth and rising home prices because of retiree migration (weren’t retirement and Camp Pendleton pretty much the only reasons anyone moved to north SD County prior to the housing bubble?)
The foreign investor idea was just the first thing that popped into my head when reading a particular post. I think it’s most likely to happen in places where there’s lots of older, smaller houses for sale, a local economy that in good times offers lots of job opportunities for younger workers and a population that is tolerant of new residents, especially those who are immigrants. That doesn’t sound much like SD County to me.
Housing prices have gone up and down like a yo-yo in various places around the country and at various times for the entire history of post-WWII housing, there’s nothing new about that unless you’re rather young and haven’t studied your history.
GeneK | June 24th, 2008 at 5:28 pmWell… I’m moving back to San Diego. I’m 34 and my wife is 31. We are currently DINKS and have good careers (engineer and chemist). We lived in San Diego for 10 years while I was in the Navy; and then college. We couldn’t even afford a nice starter home without "creative financing" so we moved to Salt Lake City (where we grew up) in 2004. We are moving back to SD in 2009 when my wife finishes her graduate program. Five years of Utah is all I can handle! I can’t believe I survived my childhood here. See ‘yall in a few years!
shadash…. your posts crack me up!
D Max | June 24th, 2008 at 5:52 pmI think this could turn out to be a good move on your part. By 2009 you’ll be coming back to home prices that are lower than they were when you left in 2004, and you’ll probably still have a year or more to sock away down payment money before anything resembling rising home prices becomes a concern. Hopefully you and your wife work in some of the industries that grew real jobs in the area, such as telecom and biotech, because almost all of the "job growth" that happened while you’ve been were gone was in home construction, sales and financing, they’re gone or going fast and are not coming back anytime soon, if ever.
GeneK | June 24th, 2008 at 6:13 pmHow does property tax in CA is calculated. Say someone bought the home for $600k in 2004. It has since been accessed at $600k + (3% per year adjustment up).
If I buy the home for $500k now, will my tax basis be my purchase price or will I inherit the tax basis and have to request a re-accessement.
figuringoutpropertytax | June 25th, 2008 at 11:29 pmIf you buy a home now, the tax basis will automatically be reassessed to your purchase price (plus any additional parcel tax approved by local voters and Mello-Roos if you were foolish enough to buy one of *those* houses); what the previous owner paid for it is irrelevant, so long as it’s a real market price purchase and not some kind of in-family transfer.
BTW, the annual increase under prop 13 is 2% per year, not 3% (not counting those additional taxes).
GeneK | June 26th, 2008 at 1:40 amThanks for the information, GeneK.
figuringoutpropertytax | June 26th, 2008 at 5:04 pm