We saw yesterday that fewer NSDCC homes have been coming to market this year, in spite of record pricing. Boomers are reluctant to move for several reasons; aging-in-place, higher mortgage rates, and kids aren’t moving out because of affordability:
First, the number of movers has generally been on the downtrend since during 1985-1986. During 1985-1986, there were 46.470 million people who moved, or 20.2 percent of the population, and by 2017-2018, there were only 32.352 million movers, or 10.1 percent of the population. Comparing 2017-2018 with 2016-2017 data, there were 2.55 million fewer movers during 2017-2018 (32.352 million) than during 2016-2017(34.902 million), with the fraction of movers declining from 11 percent in 2016-2017 to 10 percent in 2016-2017.
The decline in mobility rates is also reflected in the lower turnover rate, or the ratio of existing homes sold to owner occupied housing stock. In 2005, there were nearly 10 houses sold for every 100 owner occupied homes. The turnover rate dipped to 4.8 in 2010 Q3 and was on the rise as the housing market recovered, peaking to 7.3 in 2017 Q1 and Q2. It has since fallen to 6.8 homes in 2018 Q3, as interest rates have increased.
In the 1980s we had roughly twice as many people moving, but rates were dropping precipitously from 18% to 10%, and boomers were much younger. We don’t have either of those going for us now, and boomers are still in control of our destiny – could sales keep dropping?
Can we expect young adults to be tomorrow’s home buyers?
A report from the Urban Institute:
The share of young adults ages 25 to 34 living with their parents increased from 11.9 percent in 2000 to 22.0 percent in 2017. This translates to more than 5.6 million additional young adults under their parents’ roofs between the two years. This trend matches the decline in young adults’ marital rate (from 55.3 percent to 40.0 percent) during this period.
Increases in rents and student debt plays an important role in young adults’ decisions to stay with their parents. Metropolitan statistical areas with higher unemployment rates experienced a greater increase in the share of young adults living under their parents’ roofs.
This early life choice could have long-term consequences. Young adults who stayed with their parents between ages 25 and 34 were less likely to form independent households and become homeowners 10 years later than those who made an earlier departure. Even if they did ultimately buy a home, young adults who stayed with their parents longer did not buy more expensive homes or have lower mortgage debts than did young adults who moved out earlier, suggesting that living with parents does not better position young adults for homeownership, a critical source of future wealth, and may have negative long-term consequences for independent household formation.
According to the Realtors Confidence Index national survey, 89% of home sellers were at least 35 years old, and two-thirds were selling their primary residence:
Of those who bought a home, 72% were at least 35 years old, and 40% came from a home they owned. Mix of those buying up or down? Maybe 50/50?
The REALTORS® Confidence Index is a key indicator of housing market strength based on a monthly survey sent to over 50,000 real estate practitioners. Practitioners are asked about their expectations for home sales, prices and market conditions.
With more seniors than ever aging in place and choosing not to sell the family home, an estimated 1.6 million fewer properties are now available in a market already experiencing a critical shortage, according to Freddie Mac.
That is about the same number of new single-family and multifamily housing units built each year.
That stay-put trend is crashing into the rising demand for housing from the huge millennial generation: fewer homes for sale will continue to put upward pressure on already overheated home prices.
“There’s a stalemate,” said Jane Fairweather, a longtime real estate agent in Bethesda, Maryland. “We can’t get enough housing for the couples who want to put their kids in good public school systems.”
“We believe the additional demand for homeownership from seniors aging in place will increase the relative price of owning versus renting, making renting more attractive to younger generations,” said Sam Khater, chief economist at Freddie Mac, who estimates that the current market needs about 2.5 million more homes to meet demand.
The reasons more seniors are choosing to stay in the homes where they raised their families are manifold.
“They love their homes, it’s their chief investment, they love their neighborhoods and their communities, and they love the control they get in their own house,” said 64 year-old Louis Tenenbaum, a housing advocate in Kensington, Maryland. “They decide when to get up, when to go to sleep, what to eat, who to have as visitors.”
Tenenbaum is preparing to age in place himself. He is in the midst of building an elevator into his three-level home. He has also widened doorways, made a curbless shower and lowered his kitchen counters, should he ever be in a wheelchair. he notes that 63 percent of the $383 billion spent on remodeling each year is among people over 50 years of age, according to Harvard’s Joint Center for Housing. The trouble is they don’t always add features for aging in place.
“If we can shift the remodeling industry to be doing those types of things when they’re already remodeling, then we really start to change the housing infrastructure and we create this place where people can enjoy living out their years in their home,” Tenenbaum said.
That’s great for homeowners, but not so great for young buyers hoping to move into larger suburban homes.
Bill featured the article on CR, and he had these thoughts:
Even when people move to retirement communities, many will not sell their homes. They will rent them instead – especially in the higher priced areas with significant capital gains – since they have to pay capital gains if they sell (above $250K exclusion for single, $500K for married), but the property steps up in value when they pass away. So they can leave the property to their kids with no taxes.
This could be fixed with policy changes. Either eliminate “step up” basis (take away the incentive to hold), or give older homeowners a one time unlimited exclusion (so they can sell while they are alive).
Aging in place is great for the senior, but what frequently happens, is a four bedroom house is occupied by just one person (inefficient). This is another area where zoning changes could help – let the senior sell her larger family home without tax consequences, and move to a smaller home in the same community (so they can keep their local ties).
Wouldn’t it be nice if everyone had a one-time unlimited exclusion from the capital-gains tax! Would it make you move? Is it the only thing that’s holding seniors back? I don’t think so. The general comfort of staying put has many physical, mental, and emotional benefits to them. But if the government ever gets realistic about fixing the housing crisis, this would be the place to start.
Freddie Mac’ research finds that today’s seniors (persons born after 1931) are staying in their homes longer, and aging in place. While Millennials have historically low rates of homeownership, the rates among seniors are high relative to previous generations.
The company estimates that this trend accounts for about 1.6 million homes that have not been available for sale. This represents about one year’s typical supply of new construction and about half the 2.5 million units need to meet demand. This gap will increase the relative price of owning versus renting, making renting more attractive to younger generations but it also puts upward pressure on both house prices and rental rates.
The why of this trend can be explained by a few key factors; better health and higher levels of education. The economists say this pattern is likely to increase over time as improvements in health care and technology make aging in place easier. They cite as an example the ability to Skype with a doctor.
The research compared homeownership rates for seniors aged 67 to 85 in two different periods. The current crop of seniors, they call them the “Good Times” cohort, were born in some bad times between 1931 and 1941 but with the benefit of relatively good times through their lifetime. The “previous generations” combines the generation born before 1924 and the “children of the Depression” born between 1924 and 1930.
The aging in place trend becomes apparent right after members of the two cohorts reach 67. Between that age and 87 the homeownership rates dropped by 11.6 percent for previous generations but only 3.6 percent for the Good Times cohort.
To reach their estimate of how many housing units have been held off the market by recent cohorts of senior citizens, the economists engaged in a thought experiment and evaluated a “counterfactual.” What would have happened if the Good Times cohort had behaved like prior generations? Since the diversion between the two cohorts begins at age 67.4, they used the pattern of the previous generations to develop a scenario to answer that question.
These estimates suggest that had the Good Times cohort transitioned as previous generations did, there would have been around 1.1 million more housing units available by 2018.
Generations that came along after the Good Times cohort, the “War Babies” (1942-1947) and “Baby Boomers” (1948-1959) are also expected to stay in their homes at higher rates, and thus contribute even more to the number of houses held off the market. Similar calculations for those two groups lead to an estimate that an additional 550,000 homes were held off the market by these cohorts by 2018, as shown in Exhibit 3. The combined total of 1.6 million units is 2.1 percent of total owner-occupied housing units in the United States as of 2018.
Ryan posted the history of real estate cycles in Sacramento County, so here are the same years for North San Diego County’s coastal region for comparison. Human nature tends to flow in the same direction everywhere, and as a result, our history looks a little like his:
Number of Sales
Median Sales Price, Annual
At the time it seemed like sky was caving in, but looking back we only had two bad years (2008 and 2009) in the last twenty. There was some scuffling around as we found our way in 2006-2007, and 2010-2012, but given that our market had been injected with the most exotic financing ever known to man, and then tanked by foreclosures and short sales, I think we did pretty good to survive it as well as we did.
With 90% of the NSDCC active listings priced over $1M, all we need is wealthy people to keep coming here to buy their forever home. We’re still cheaper than the LA/OC and Bay Area, so we look attractive to downsizers.
Our pricing may bounce around, but without brainless bank clerks dumping properties for any price, who else is going to cause a collapse? We could run low on the number of buyers – and if we did, all it would do is cause a protracted descent; re: soft landing over years.
Here’s a conversation I had yesterday with a guy who is 80+ years old and who has lived in his house since the 1960s:
Him: Convince me why I should sell my house.
Me: How are you getting around?
Him: I ride my bike to the store.
Me: Do you need the money?
Me: Have you ever dreamed about buying a house on the lake and fishing the rest of your life?
Me: Are you married?
Me: Did you know that if you did sell, you’d have to pay six-figures in taxes? How would that make you feel?
Him: What? I only paid $19,500! I’d never pay that much in taxes!
Me: What happens upon your demise?
Him: My daughter will inherit – she grew up here, and will likely move back in. But I told her if she doesn’t move in, it’s ok with me to sell it.
Me: Do you have a family trust?
Me: Did you know that if she sells the house, she will pay no tax?
Him: You’re kidding? If I sell it, I have to pay the tax man six-figures, but if she sells it, she pays nothing? Jim, I think we have the answer!
There will be occasional sales where sellers hire bad agents and get taken advantage of, but there won’t be an avalanche of desperate sellers dumping for any price. It would take a tsunami, earthquake, or terrorist event at the border to cause a drastic shift in housing – which could happen!
Here’s the latest photo of the nuclear waste being stored right on the surf at San Onofre. All we need is one crack in a storage cask…..
Without a catastrophic event, what’s the worst we can expect?
Maybe 5% drop in pricing in the short-term?
Any more than that, and sellers will just wait it out.
Earlier this week the grays were on their way out, but it may take a while. Can you believe that 34% are removing the bathtub? From Houzz:
Anticipating Aging Needs: The majority of baby boomers (ages 55 or older) are addressing current or future needs of aging household members during master bathroom renovations (56%). One-third of boomers are addressing current aging needs (35%), while nearly a quarter are planning ahead for future needs (21%).
Curbless Enthusiasm: Nearly half of boomers change the bathroom layout and one-third remove the bathtub (47% and 34%, respectively). Other upgrades include installing accessibility features such as seats, low curbs, grab bars and nonslip floors in upgraded showers and bathtubs.
The Suite Life: Homeowners are focusing on the master suite as a whole, with nearly half of master bathroom projects accompanied by master bedroom renovations (46%). Master bathrooms command the second-highest median spend ($7,000) in home remodels, behind kitchens ($11,000), while master bedroom spend rivals that of living rooms ($2,000 versus $3,000, respectively).
Premium Features Galore: A surprising one in 10 master bathrooms is the same size or larger than the master bedroom (11%). Beyond size, premium features in master bathrooms are on the rise, with dual showers, one-piece toilets, vessel sinks and built-in vanities showing significant increases in demand in the last three years.
Bathed in Gray: Gray palettes continue to lead in walls and flooring and are increasingly popular in cabinets. Newcomer styles continue to overtake contemporary style, with farmhouse more than doubling in popularity, from 3% in 2016 to 7% in 2018. Matte nickel and polished chrome are the most common metal finishes.
How can the market keep going? Generational wealth distribution!
Among respondents with an annual income over $100,000 who anticipate familial help with a down payment, the average expected level of support is over $50,000, enough for a 20 percent down payment on the national median condo price.
This is more than twice the expected down payment assistance of those making between $50,000 and 75,000, and over ten times that of those making less than $25,000, who expect to receive $4,358 on average.
This finding highlights the chronic nature of wealth inequality — not only do lower-income millennials have less purchasing power themselves, but their families have less support to offer.
We find that when it is available, familial down payment assistance can put homeownership much closer in reach.
Among millennials earning more than $50,000 and expecting help with a down payment, we estimate that 32.8 percent will be able to acquire a 20 percent down payment within the next five years, compared to 19.8 of those with similar earnings but no expected down payment assistance.
Among those earning less than $50,000, the prospects are notably worse, but those who expect down payment help still see a significant step up compared to those expecting no help. While help from family can make homeownership a more attainable goal, this option is available to a minority of millennials, with the largest benefits accruing to those earning the highest incomes.
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