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Category Archive: ‘Boomers’

Bubble Or Sustainable?

The folks at www.1worldonline.com like to poll their audience, and last month they used a bubbleinfo.com blog post in one of their surveys.  Their readers voted on this question:

Is the increase in real estate value a sustainable trend?  Home prices have increased substantially in the last year compared to the previous seven years.  Is the increase a sustainable trend, or just a miniature housing bubble?

https://1worldonline.com/#!/poll/773

Chris says 55% of respondents believed another crash was going to come, with more Republicans strongly believing in a crash.

Those who voted for another crash may have been influenced by the opposing blog post to mine, which talked about the millenials facing a weak job market, and shrunken workforce in general.

This was his summary paragraph:

With investors fleeing the real estate market because of higher interest rates, with fewer people working and those that are working are earning and saving less, who is going to be able to buy houses in sufficient volumes to keep the real estate “recovery” going? It doesn’t matter how low interest rates are if people don’t have the incomes, savings or credit to buy homes. Rising interest rates can only make a bad situation worse.

My rebuttal, which, like my blog post, pertains to our local market:

  • Investors fleeing?  Supply evidence please, or is that just a guess?  I still get emailed every day by investment groups wanting me to send them deals.  If there are fewer investors buying, it’s because there are fewer deals, which would mean prices are holding up or going higher – too high to make sense for flippers.  Investors are supplying the floor to the market.
  • Unemployment has been terrible, with little or no improvement in the last few years - yet our real estate prices have gone up 20%.  Apparently, the local real estate market is NOT influenced by unemployment.
  • Savings or credit?  You can obtain an FHA loan up to $697,250 with 3.5% down payment and a FICO score as low as 580.  PacTrust Bank will give you a 30-year fixed rate around 5% even if you have had a short sale in the last year.  Most anyone can get a mortgage if they want it bad enough.

Even if it’s not as bad as he says, we keep hearing how ‘demand has been pulled forward’.  If so, it’s a good question - who will be the future buyers?

The future buyers will be the first-timers and others who want to finance their purchase, especially with a lower down payment, who have been shut out by the big-money investors and cash buyers in general.  This future-buyer pool will likely have a limit on their resources, so the appreciation trend will probably moderate, and prices will fluctuate from area to area.

But with a county population of 3.14 million people, we don’t need everyone in the pool – we only sold 3,466 homes in the county last month.  You could exclude 90% of the population from the market and we’d still have enough demand…at least until the baby-boomer liquidation sale starts around 2020.

Posted by on Sep 10, 2013 in Boomers, Bottom Talk, Double Dip, Forecasts, Jim's Take on the Market, Market Conditions | 15 comments

Boomers Downsizing

As the Colorado housing market rebounds, baby boomers are becoming a key player.

Housing prices are up, and interest rates are low which makes this the perfect time for many baby boomers to sell those big houses they raised their families in and downsize into much smaller homes. And in Denver, one new trend among baby boomers is moving downtown.

Cindy and her husband, Cisco Uribe are among those empty-nesters who are giving up life in the suburbs for a new lifestyle downtown.

“We went from a big kitchen to a little galley kitchen,” Cisco says as he shows CBS4 around the couple’s new condo in Brooks Tower in downtown Denver.

The condominium is 600 square feet, which is roughly one-sixth the size of the home they used to own in Thornton. Everything is smaller in the condo, including a cabin bedroom and closet space. They went from having three bathrooms to having just one.

The couple bought the condo fully furnished, so all they brought with them is some clothes and personal items. The rest of their stuff they sold or put into storage.

“It feels a lot lighter … and easier,” Cindy told CBS4.

“I feel younger,” Cisco added.

Read More

Posted by on Aug 10, 2013 in Boomers | 4 comments

Boomers Cause Next Crash in 2020?

Hat tip to Drum Bob for sending this in on boomers – an excerpt:

According to data from the American Housing Survey, from 1989 and 2009, 80 percent of new homes built in that era were detached single-family homes. A third of them were larger than 2,500 square feet. And most startling – “I checked my numbers over and over again,” a bemused Nelson says – 40 percent were built on lots of half an acre to 10 acres in size. Now, he says, 74 percent of new housing demand will come from the people who bought these homes, now empty-nesters, wanting to downsize.

A vast majority of today’s households with children still want such houses, Nelson says. But about a quarter of them want something else, like condos and urban townhouses. That demand “used to be almost zero percent, and if it’s now 25 percent,” Nelson says, “that’s a small share of the market but a huge shift in the market.” And this is half of the reason why many baby boomers may not find buyers for their homes. “Even if the numbers matched,” Nelson says, “the preferences don’t.”

boomerhouseDemographics 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 we’ve already built.

As the Hispanic population expands, and more baby boomers retire, the gap between the two groups in the housing market – expressed in unsellable 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 households 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 households 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 households 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.”

In that environment, he says, there will be two classes of seniors in America: those “aging in place” voluntarily, and those “aging in place” involuntarily because they can’t sell their homes. Nelson is critical that “aging in place” will really be feasible for many seniors.

“It’s romantic for the first 15 years when you’re turning 65 and retired,” he says. “But aging in place among 90-year-olds? 95-year-olds?” Many of these people, he predicts, won’t realize that they can’t mow the lawn or pay for repairs until they’re really elderly, and the market for the their homes has collapsed even further. “My suspicion,” Nelson says, “is that many hundreds of thousands, maybe millions of those households in the 2020s to 2030 and beyond will simply give up the house and walk away.”

http://www.theatlanticcities.com/housing/2013/03/aging-baby-boomers-and-next-housing-crisis/4863/#

Posted by on Mar 5, 2013 in Boomers | 5 comments

Housing-Inventory Shortage: Boomers

Many of the ivory-tower types are hoping to make sense of the now nationwide housing-inventory shortage, and predict the next tsunami.

http://www.businessinsider.com/us-housing-inventory-shortage-2013-2

The housing inventory is at, or below, where it was in 2003-2005, the peak of the boom era.  Around here, the prices are at, or above, what they were during the same period.

Yet people don’t want to sell.  Why not? A simple explanation:

The housing needs of baby-boomers have peaked.

In the mid-1990s, boomers were 30 to 50 years old, and coming into their best income-producing years as the previous housing bust was bottoming.

Then we hit the jackpot with the Taxpayer Relief Act of 1997, which allowed those who had lived in their house for two out of the last five years to sell and pocket their gains tax-free (up to $500,000 per couple).

Combine that generous tax relief with baby boomers hitting their peak consuming age, and you have the greatest real-estate boom in history between 1997 and 2005 – this graph shows how tight the inventory was then:

housingsupply

But in spite of the mortgage industry goosing the market with exotic financing, the boom couldn’t last forever at those prices/monthly payments.

Some of the drop-off was caused by baby-boomers already being satisfied.  By 2013, boomers are settling down at 50-70 years old:

  • The kids are gone or close.
  • Job advancement is unlikely.
  • Have enough money for now.
  • No need to move.
  • Where are you going to go?

We will probably see the inventory shortage last another 5-10 years, until the elderly or their families start the Baby-Boomer Liquidation sales.

There are 77 million boomers working through the cycle, which will likely be strung out for as long as possible – when was the last time you saw a baby-boomer jump up and say, “I feel like moving today!”?  Instead, baby-boomers will age-in-place while enjoying their golden years.

For many the golden years won’t be as golden as they thought, but they will delay selling the family home as the last resort.

It will probably be a fortunate thing that the lenders/government allowed defaults to drag out – we will need their REO and short-sale listings now!

Expect the tight inventory to continue until the voracious housing demand is curbed by mortgage rates rising sharply, or by the next recession.

babyboomerspendinggraph

Posted by on Feb 24, 2013 in Boomers, Graphs of Market Indicators, North County Coastal | 7 comments

Will Boomers Add To Inventory?

What will slow or stop our current frenzy?

The demand is so deep that it appears that buyers will be gobbling up the usual springtime surge of new inventory…..if there is a surge.

Who will be listing?

We can’t expect much from the banks, they quit foreclosing and will drip out whatever they have left.

Because the large investment firms got in so cheap and are enjoying the rising rents, they will be happy to hold long-term, rather than to cash out and pay capitals-gains tax (a big stumbling block for all investors).

The homeowners who are underwater will want to hold out and see if their previous equity might re-appear.

There are 77 million baby boomers, the oldest of which are heading into their retirement years.  Can we expect more inventory from them?

From the AARP video below:

  • Only 9% of boomers are affluent (making over $150,000/year pre-tax)
  • 25% of boomers have no savings
  • 33% of boomers don’t have a retirement account
  • Only 11% plan to stop working

Won’t there be an exodus of baby boomers who are down-sizing, or have to cash out their equity to pay for living expenses for them and their kids/parents?

According to the survey:

  • Only 6% of boomers plan to downsize
  • 76% of boomers plan to “age in place” (not move), or buy a larger home.

Will the only relief to this frenzy be affordability, or lack thereof?

Posted by on Feb 18, 2013 in Boomers, Inventory, Thinking of Buying?, Thinking of Selling?, This Is America | 3 comments

Staying Put

A friend who lives in La Costa Valley called, and demanded an answer.

Why is no one moving?

We had discussed previously why the long-time owners in La Costa Valley (built in the late-1990s) aren’t moving.  They are busy raising families and enjoying low property taxes – plus, where else is any better?

But she drove through old La Costa, which was mostly built in the 1970s, and could only find two for-sale signs there.  What gives?

I think there has been a transformation about how we view our housing.

Primarily it’s because we are older, and have experienced the first big real estate depression in American history.

1.  Older

During the Big Boom of 1997-2004, baby boomers were in their 40s and 50s, and in the prime of their lives.  Not only was employment fantastic, but everyone was getting rich on real estate.  The ambitious folks cashed in their gains every two years and moved up, while others were content knowing that their equity build-up would someday be their retirement nest-egg.

But now the baby boomers are much older – in their 50s and 60s.  Employment is uncertain at best, and the kids are leaving or have left.  There isn’t the want or need for a bigger house.

If there was a reason to move, does anyone over age 50 want to take on a new 30-year mortgage?  Not unless it is a fairly small loan, which means either draining the bank account, or leaving town – neither of which is very comfortable for long-timers.

Though it was in our DNA to constantly be moving, we have gotten to the age where it isn’t easy to move, and rarely makes sense.

2.  First Real Estate Depression

Our belief that “real estate always goes up” has been shattered.

People never thought much about prices going down (the early-1990s are forgotten), but now we have been rattled by the reality.  With all of the other uncertainty in the world, we have come to appreciate what we have, and are satisfied that it is enough.

Those who are ‘underwater’ and other debt slaves aren’t beholden to their home – for the last 5+ years they have had a free pass to walk scot-free, and not many have done it (there were 356 short sales last year in NSDCC, or 11% of the total sales).

The same prognosticators who predicted that there would be a tsunami of underwater liquidations now believe there will be a new flood of sales by the same underwater folks once they regain some equity.  No way.

They have endured the toughest financial battle of their lives by waiting it out, and now they are going to bail?  Besides, where are they going to move?

They are staying put, and appreciating what they have even more.

With Prop 13 providing the benefit of passing down the old property-tax basis from parents to kids, the lack of inventory should continue.  Home sellers will be those who NEED to sell, and apparently there aren’t many of those today.

Posted by on Feb 6, 2013 in Boomers, Market Conditions | 10 comments

Down-Sizing

The McMansion generation is in downsizing mode.

Millions of Americans age 50 and older are looking around their spacious homes and are deciding they don’t need all that room anymore. The kids are gone, maybe a spouse, too. And they could really use the money from a sale to bulk up their retirement funds.

But downsizing isn’t always simple, painless—or even all that beneficial financially. With the real-estate market still fragile, many baby boomers are getting a lot less than they expected for the old homestead. All too often, they have little cash left over after buying a new place, and their monthly expenses don’t fall as much as they thought—or may even rise instead.

Then there’s the emotional pain of scaling back. Many baby boomers are finding they lack the stomach or stamina to dismantle their lives. They can’t bear to sort through or part with all those boxes in the basement, or argue with the adult children who want to keep the house where they grew up. Sometimes they downsize only to find they miss their old lifestyle and stuff.

“Don’t make any broad assumptions that downsizing is going to save your retirement,” cautions Jeff Bogue, a certified financial planner in Wells, Maine. “It may help your finances, but I’ve seen plenty of people who find that it doesn’t pan out as they had thought.”

It’s a challenge lots of boomers are going to face. All told, more than 40% of Americans ages 50 to 64 plan to move within the next five years or so, according to the Demand Institute, which is jointly operated by the Conference Board and Nielsen Co.

Dominated by “the many baby boomers who delayed retirement during the recession,” prospective downsizers exceed would-be “upsizers” by nearly 3 to 1, says Louise Keely, chief research officer at the Demand Institute.

Here’s a look at some of the problems you might face as you scale down—and how to overcome them.

Read More

Posted by on Dec 11, 2012 in Boomers, Sellers Waiting For Comeback, Thinking of Buying?, Thinking of Selling?, Tips, Advice & Links | 10 comments

The Big Fear – Boomers Selling

From cnbc.com:

Baby Boomers putting their house up for sale could flood the market in coming years, while the younger generations may not be interested in buying, a new report says.

“It’s already happening in some states like Michigan,” says Rolf Pendall of the Urban Institute and a co-author of the report by the Bipartisan Policy Center.

“Seniors there are already putting their homes on the market and the absorption of housing is less and creating more inventory,” Pendall explains. “There’s hesitancy on the buyer’s part.”

As boomers downsize because of retirement, finances, health or death, they’re expected to release some 26 million homes onto the market by 2030, according to the Policy Center paper.

The problem is that echo-boomers, or Generation Y—those born between 1982 and 1995—may not be buying up the inventory, says Pendall, whose retired mother is trying to sell a home and downsize.

Read More

Posted by on Mar 9, 2012 in Boomers, Market Conditions, Modular Homes | 26 comments