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