They rocked at Woodstock, marched in protest on campus, distrusted authority, and then as adults, took out mortgages and bought lots of real estate. But now, say some economists, baby boomers aren’t selling their houses as earlier generations did — they’re not downsizing fast enough as they approach and pass traditional retirement ages — and that’s contributing to inventory shortages of homes for sale as well as rising prices.
Boomers are part of a “clogging up [of] the whole chain of home sales,” Sean Becketti, chief economist of giant mortgage investor Freddie Mac, told me last week. “They appear to be staying in the family home longer than previous generations,” Becketti wrote in a new outlook report, “and the imbalance between housing demand and supply continues to boost prices.”
Of course boomers’ behavior has had outsized effects on the national economy for decades. In real estate, their footprint is enormous. Becketti cites the Federal Reserve’s most recent Survey of Consumer Finances (2013), which estimated that households aged 55 and older controlled two-thirds of all home equity. One federal estimate puts the aggregate value of their houses at close to $8 trillion.
In past generations, once the kids moved out, empty nesters either began to downsize by purchasing smaller single-family houses or they rented apartments. Boomers don’t seem to be in a rush to do either. In a report prepared this summer, Fannie Mae’s Patrick Simmons, an economics and strategic research group director, said that there’s no statistical evidence that boomers are reducing their single-family occupancy rate, trading down to homes with fewer rooms, or pushing up demand for apartments. Between 2010 and 2013, he said, “the number of boomer apartment renters did not change significantly,” but the number of millennial apartment dwellers increased by an average of nearly half a million a year.
So what’s the big deal? Why the concern about boomers staying put longer than expected? Everybody’s heard that 60 is the new 50 and that boomers are working longer than their parents and grandparents. Who really cares if they’re hanging on to their houses?
Here’s who: People who sell, build and finance new and existing houses care — it’s their bread and butter — as do potential buyers squeezed by rising home prices on one hand and rising rents on the other. According to Realtor.com, median list prices as of October were up 6 percent year over year. Inventories of houses listed for sale nationwide were down by 3 percent during the same period.
Three percent doesn’t sound like much. But check out the shortages and price increases in a few major markets:
— Seattle listings as of October were down 19.1 percent while median list prices jumped by 10.3 percent.
— San Diego listings dropped by 16.4 percent; median prices rose by 13 percent.
— Charlotte listings declined by 9.8 percent; median prices were up by 12.8 percent.
— Salt Lake City listings were down by 23.4 percent; prices were up by 10.2 percent.
No one’s blaming this on boomers alone. Economists say boomers’ slower than expected rate of downsizing and selling is playing a contributing role to supply, demand and pricing imbalances in local markets — not creating them.
Lawrence Yun, chief economist for the National Association of Realtors, says there are multiple factors at work here, especially the lingering effects of the housing bust and the Great Recession. Homeowners of all ages lost billions of dollars of equity wealth during 2008-2011, he argues, and many owners are still rebuilding sufficient equity to allow them to sell and move without having to bring money to the settlement. Boomers are a part of that group and some have been forced to postpone their moves and sales.
David Crowe, chief economist for the National Association of Home Builders, points to a feedback loop effect that is discouraging some boomers from listing and selling: Fewer listings mean more competition for a limited supply of homes in hot markets. That competition pushes up prices for everybody, including boomers who might like to downsize but can’t find a replacement home that’s both affordable and acceptable. So they wait.
But changes are coming. Fannie Mae’s Simmons observes that the boomer logjam is a temporary issue. “Boomers will not inhabit this vast inventory (32 million homes) forever,” and when their circumstances change — which they inevitably will with age — watch out. “Their actions will reverberate through the housing market … .”