Downsizing baby-boomers could end up causing real estate’s biggest leg-down of all.
from the N.Y. Times:
http://www.nytimes.com/2009/09/10/garden/10nest.html?pagewanted=1&ref=todayspaper
In the quaint central Connecticut town of East Haddam, Bill and Rose-Marie Evans built a theme park for their three children. Their property included a pool, a hot tub, a swing set, a trampoline, a paved basketball court and more than enough yard to host neighborhood soccer and kickball games.
They had expanded the ranch house they bought in 2001, turning it into a 3,000-square-foot home with room indoors for games like pool, table tennis and Foosball, making it a prime sleepover destination. “The master bedroom was on the first floor,” Mr. Evans said. “There were three bedrooms and a second family room upstairs. The kids had 1,200 square feet to themselves.”
But then in mid-June, the moving van arrived, and the Evanses left behind their own personal vacation land and squeezed uncomfortably into a 1,200-square-foot rental, while they began building a marginally bigger home. The couple had decided that with the economy uncertain, they had to conserve money and live more modestly.
Leaving the home they once believed would be theirs into retirement was a painful decision, one many baby boomer families are facing. It’s an issue that especially resonates in suburbia, where highly taxed, stressed-out parents wrestle with the prospect of moving sooner than they had planned. But children can be uncomfortable with decisions that change their notions of security, and their unhappiness forces parents to consider what they do — or don’t — owe their offspring.
“We always believed that was going to be the place we would come back to with our own kids for Christmas and Thanksgiving,” said Andrew Inman, 19, who, along with his sister, Brittany, 17, is Mrs. Evans’s child from a previous marriage. “We kind of felt lied to.”
Baby boomers are already driving a new market for smaller, less expensive homes, according to Stephen Melman, the director of economic services for the National Association of Home Builders in Washington. In a recent member survey, 59 percent of builders nationwide said they were planning to or were already significantly downscaling from the McMansion era.
“Many boomers seem to be thinking they are going to do it eventually, they may as well do it now while they need the money for tuition or because there’s just less money available,” Mr. Melman said.
No silver spoon for you! And no soup for you either!
Gosh, it’s almost like there were NYT spies at your birthday party last year.
A couple looking to up size because they are growing their family, should perhaps try to find an elderly couple in the same neighborhood looking to downsize. Potentially, this would be a win win situation. Of course the young couple will need to pony up some cash if they are upgrading.
“We always believed that was going to be the place we would come back to with our own kids for Christmas and Thanksgiving,” said Andrew Inman, 19, who, along with his sister, Brittany, 17, is Mrs. Evans’s child from a previous marriage. “We kind of felt lied to.”
The sense of entitlement is galling. Those are some seriously spoiled kids. They’re going to really enjoy these next 10 years of no economic growth and lousy job prospects.
Just because the NYTimes does an item about a few families, doesn’t make it is a big trend. . .my own experience is that most older people stay in their homes until they are carried out feet first. . .or go from their home to a nursing/assisted living facility. A lot of people talk about downsizing, but few actually do it.
Completely off topic, but I do see that sports comments appear regularly here on JtR’s blog.
Did anyone read (Orange County Register) Mark Whicker’s sports column, entitled: “Many Things Have Happened in Sports in the Last 18 Years” last Monday? The first line is shocking enough: “It doesn’t sound as if Jaycee Dugard got to see a sports page.”
Here’s the link to his 9/7 column:
http://www.ocregister.com/articles/world-won-most-2555260-never-one
And his apology is now linked (at the top) to that column link.
Jim, feel free to delete my post. But as a mom with of a 19-year old daughter who had a scary incident just 10 days ago in a mellow CA college town which could have gone horribly wrong, I’m shocked and outraged with this sport columnist’s utter insensitivity and seemingly light comments of such a horrid nightmare for an 11-year old girl kidnapped back in 1991. I found his apology equally offensive. I’m also shocked that his editor (last Monday) even OK’d the column to run in the paper.
For me, this is one of those classic: What were they thinking??? Just my two cents, but the guy has 22 years experience in writing columns, but sounds like he’s “one taco short of a combo plate” in common sense and compassion. The vast majority people who left comments online that I read felt the same way.
Once again, Jim, it’s your call as to whether you want to delete my comments. I have absolute respect for your wisdom as to which posts stay and which ones are deleted from bubbleinfo.
Thanks for letting me express my outrage! Now back to our regularly-scheduled real estate talk…
I always thought the downsizing concept was strange. Unless I had a 5000+ sq.ft. “bomber”, as Jim calls them, then I can’t see myself thinking “you know, I could really go for a big decrease in personal living space, that would be nice”
Susie, he did submit his apology, but it was weak. The editor deserves to be fired, how did he/she let it run?
At first I too thought that there would be a lot of people looking to unload their big, expensive, inefficient homes filled with “stuff”. But now I think it will balance out like Mark in SD wrote. For every empty nester or late life divorce moving downtown, there is someone with 3 kids looking for a bigger place.
Though the era of the McMansion is coming to an end, and new homes are becoming smaller for a number of reasons.
Mark in San Diego,
Agreed that downsizing is talked about among the older set and their families, but I think it is just delayed, or put off. I know my folks put it off until my sister made them go look at houses, and a few months later they bought a nice single story.
The feet-first trend will definitely continue, but regardless of when, the supply of dated two-story homes coming to market should be a major topic of discussion.
Seems like most of the downsizing examples in that article are from the East coast. In California, paying low taxes on property you’ve had for years must certainly play a big part in discouraging downsizing.
Jim, This is completely off topic, but I just wanted to commend you on an absolutely professional and informative blog. I check it every day, and I live in Seattle! Keep up the good work! and thanks.
Haha boomers spent their retirement on crown molding and pergo tiles…
You’re screwed we all know it. Now get out of my house and get used to renting.
Dwip,
Prop13 basis can be transferred if you’re over 55.
As long as the price isn’t higher, they’re fine. Here’s a good explanation from Sac county assessor:
http://www.assessor.saccounty.net/GeneralInformation/Proposition13BaseYearValueTransferstoReplacementProperties/default.htm
Chuck Ponzi
The state BOE lays out the specifics of Prop 60, 90, and 110.
Most people want to trade down, and these props allow specifically for that without losing the tax advantages.
http://www.boe.ca.gov/proptaxes/pdf/lta06010.pdf
Chuck
Hunh! Thanks for the info Chuck. Guess I always blipped over the “if you’re 55 or older…” clauses since I still have a ways to go for those. 🙂
This story reminds me of something I said to my parents years ago, ONE of the times I was looking to buy but decided it was too expensive. My words were “who the heck is going to buy all these places when people want to sell?” (Combined with my assertion that my demographic block is essentially getting it on both ends–paying more for education and housing, and will be getting less in retirment and social security.)
I was very frustrated at the time 🙂
Normally downsizing is a big nothingburger, especially in Prop.13-protected California.
However, this time has the potential for big differences. Declining/disappearing pensions & health benefits, increasing food, energy & healthcare costs and evaporating investment portfolios may force seniors to liberate whatever remaining equity they have to maintain some semblance of a reasonable retirement.
I agree with Art Ecletic – the entitlement of the KIDS jumped out.
I noticed also the parents are downsizing to conserve money. Meaning they didn’t plan for their retirement in a down market… I can see that hitting a lot of boomers – so the trend might be bigger than some of you think.
In a gross generalization (your mileage may very) a lot of boomers spent money as quickly as they made it – refinancing and pulling cash out rather than paying down that mortgage. Now that the retirement years are approaching that “oh #$@#” realization is hitting them… how do they pay the mortgage on just social security? There have been lots of articles about the lack of 401k savings among boomers and how that’s going to hit the economy.
I don’t think this will be isolated. I don’t think prop 13 will prevent it from hitting California. I think it is a trend we’ll see here.
Prop 13 is killing CA.
I sure learn a lot about my neighbors reading the CraigsList ads. Take a look at this genius:
“I have for sale an assorted mix of the United State quarters. I will sell 40 of them for $20.00 or I will part them for $1.00 each. If you need a specific one, or want to know what comes in the 40 pack, ask me because i probably have it. Thank you. “
what do think of the AP story about the foreclosure in Malibu AND Wells Fargo Bank.
See:
http://www.kcoy.com/Global/story.asp?S=11111106
Will this add more fuel to the low end fire? First-time buyers, investors, and now move-down buyers are all clamoring for something less expensive.
Just for the record, I agree that most seniors (let’s say 65+) whom I know personally, are going to live in their homes till they die.
But I know several people on the brink of becoming “seniors” who are seriously considering downsizing.
And, in fact, we are buying our new home from new empty nesters (late 40’s?/early 50’s?) who are indeed downsizing. They are not underwater on this home, but let’s just say they would have made 50% more had they been able to squeak out at the top.
I suspect the tail end of the babyboom–those who got more caught up in the bubble than those seniors with some (vague) memories of the depression–are much more likely to “see the wisdom” in downsizing (read: are caught in a jam they are finally realizing they cannot pay for).
The question for me is: will too many dither now and then panic as a group later, causing them to dump too many (mostly mcmansions) on the market at once?
We have seen over and over people’s ability to deny the seriousness of their financial situation until it is too late to fix it.
Normally downsizing is a big nothingburger, especially in Prop.13-protected California.
However, this time has the potential for big differences. Declining/disappearing pensions & health benefits, increasing food, energy & healthcare costs and evaporating investment portfolios may force seniors to liberate whatever remaining equity they have to maintain some semblance of a reasonable retirement.
tj and the bear | September 10th, 2009 at 7:10 pm
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This is exactly right, IMHO.
If you look at the most desirable, established neighborhoods; you’ll find they are FULL of old people. Yes, some of their heirs will keep their houses and move in, others might rent them out, but there is an ample supply of houses that are fully paid off and have a very low cost basis to boot.
I’ve long said that people have been focusing too much on the foreclosures. The foreclosure market can be fairly easily manipulated, but the market of homes owned 100% by elderly people and/or their heirs who need to sell is not so easily manipulated. They are not trying to keep prices artificially inflated so that “their books” reflect bubble prices, and they are not beholden to govt interests. IMHO, this is going to be the best place to get a great home at a reasonable price.
“….but the market of homes owned 100% by elderly people and/or their heirs who need to sell is not so easily manipulated. They are not trying to keep prices artificially inflated so that “their books” reflect bubble prices, and they are not beholden to govt interests. IMHO, this is going to be the best place to get a great home at a reasonable price.”
excellent observation by CA renter.
I’m witnessing this exactly in an SD community near me in which has a substantial aging homeowner base, with several homes on the market. One rather premium property in particular, being sold by heirs, had a one step 210K price cut almost 3 months ago and is still on the market. Another 100K drop would get me motivated.
“Prop 13 is killing CA”
It was not a problem when times are good. It the overspending by politicians when adjusted to inflation and population growth.
But Prop 13 should have been inflation adjusted when concerning commercial property from the start in 1976.
The beauty of Prop 13 is the “buffer” effect. During times of declining real estate values, such as now, the property tax revene stream collected by the government is not effected nearly what it would be if Prop 13 did not exist. For example I have read that property tax revenues in SD County are down only 3% from their peak, whereas values are down roughly 35%. This is due to many properties with low tax basis’ still being recessed higher. Can you imagine hearing the politicians scream if they were now collecting 35% less that they once were!!!