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:
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.
Alternatively… rising taxes, food, energy & healthcare(!) costs combined with declining investment income force them to sell.
Could easily go either way.
Ahh the ’97 TRA…rented my primary rez for cash poz, moved three blocks away into my rental for two years while fixing it, then sold in ’05 and pocketed $500k free and clear. Seemed like stealing. Then The Bernank snatched away my 5% risk free return options, making paying off my mortgage attractive. Now mortgage-free I aint goin’ nowhere.
Solid argument this marks the low in the inventory cycle
Could easily go either way.
Agreed that rising costs and lower income will tightly squeeze the elderly, but for them the FHA-sponsored reverse mortgages will extend the agony long enough that many or most will expire without having to deal.
My co-worker is 73, I ask when are you going to retire, he just gives me a dirty look.
Not sure I follow the logic. The article basically says that people who are now in a position to downsize are not as well-off as people who were of downsize-age in the past.
Wouldn’t this make the current group more likely to list their house and downsize ? I think so.
I’ve started to think the reason people aren’t listing is because they expect to see higher prices next year. At some point, the upside-down people (who I have stared calling UDPs) and the empty-nesters who have been delaying the eventual sale will sell – but I’m now starting to think that may be a couple years down the road. A bubble-killing rise in inventory will happen eventually but prices have to come up first, then run into some bad economic news. That’s when they’ll sell.
Yea the boomers will sell–when they’re forced into a nursing home and not before. Until then they’re The Entitled To’s and are staying, forcing the government to irresponsibly sway to their aid by might of their voting power. Luckily the diet and health habits of the Boomers is really poor so their health will fail sooner giving the rest of the population a chance at the american dream as if there’s any pie left — which there won’t be. The only way out for the govt is to inflate and devalue to nothingness so the Boomers don’t rob the entire bank of benefits:
http://www.economist.com/node/21563725
“”A study by the International Monetary Fund in 2011 compared the tax bills of a cohort’s members over their lifetime with the value of the benefits that they are forecast to receive. The boomers are leaving a huge bill. Those aged 65 in 2010 may receive $333 billion more in benefits than they pay in taxes (see chart), an obligation 17 times larger than that likely to be left by those aged 25. …. That leaves a third possibility: inflation. Post-war inflation helped shrink America’s debt as a share of GDP by 35 percentage points (see article). More inflation might prove salutary for other reasons as well. Mr Rogoff has suggested that a few years of 5% price rises could have helped households reduce their debts faster. Other economists, including two members of the Federal Reserve’s policymaking committee, now argue that with interest rates near zero, the Fed should tolerate a higher rate of inflation to speed up recovery.””
What happens to home prices in highly inflationary environment, say 10% ? That’s what is going to happen in 5-10 years. Regardless of the downsizing the Boomers might talk about doing.
By the way, Boomers are not savers. They’re Entitled and they like to spend.
http://www.npr.org/2013/02/17/172235261/working-late-in-tough-economy-retirement-gets-pushed-back
“”Also, about a quarter of adults over 50 say they ran through all of their retirement savings during the recession. “”
All? Did he really say “ALL” savings?
So they are going to work until they die, likely at the same jobs, which means: No Selling the House.
“About a third of those between 65 and 70 are still on the job. And overall, about 18 percent of all Americans 65 and up are still working.”
I work with some of these guys. Old, prior managers, with no more management jobs around, forced to ‘go back’ into real work.
Reader quote:
“”a large segment of older workers – the unemployed and under-employed. I was laid off 3 years ago at the age of 60. I have been on unemployment with occasional temporary jobs ever since. I would like to work full time for at least another 2 years, but no one will hire me. I think it is even tougher for those who lose their jobs in their 50s. They really need to work 10 years or more in order to save for their retirement and qualify for early Social Security””
So let’s add to your list and make more conclusions
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?
* Have not saved and do not have savings. Will cut spending as income has decreased, resulting in overall stagnation of the general consumer economy. Equates to less money for everyone, less money to invest in a home.
* Only savings was/is in home equity, which may come back to slight profit in 5 years, just enough to cover medical bills growing at 38% per year by attempting to pull out the equity in about 10 years.
* Will attempt to squeak by financially as underemployed if necessary with local jobs, and no hope of ever “retiring to Florida”: won’t sell the house; can’t downsize to a sunny spot.
* Overall in poor health due to diet related conditions (check the obesity or type-2 diabetes statistics), generally believe in the big pharma myth (cure is in some magic pill, reality is that finding new drugs has dramatically escalated in R&D cost and time), so medical costs will escalate or they’ll die while working/pre-retirement.
* Conclusion, housing market will not become more liquid, and tightness in inventory could continue for 10-15 years; home builders scared of overbuilding in front of the Great Downsize (which can’t occur now) and Boomers have Nowhere To Go.