After the dire years of the economic crisis, the housing market has enjoyed a reprieve but as the Baby Boomer generation edge closer to retirement their decisions will have a large impact on the sector.
According to Forbes ‘…there are between 8,000 and 10,000 Baby Boomers reaching age 65 every day in America’. As the country’s wealthiest age group, their future lifestyle choices will influence trends in the economy and the housing market will be top of the list.
The sales of vacation homes have picked up rapidly in recent years and it’s clear that Boomers are dominating this second homes market.
According to an annual survey from the National Association of Realtors (NAR) the sale of vacation homes in the US soared last year to an all-time high of 57.4 percent.
NAR’s chief economist, Lawrence Yun analyses the reasons behind the markets ‘astonishing growth’ in Property Wire, stating:
‘Last year’s impressive increase … reflects long-term growth in the numbers of Baby Boomers moving closer to retirement and buying second homes to convert into their primary home in a few years.’
The results of the survey show that vacation home ‘sales increased to an estimated 1.13 million last year’, accounting for 21 percent of all transactions and holding the highest market share since NAR began tracking the sales in 2003.
Of those surveyed, a third of second home buyers intended to use their property for vacations and nearly a quarter planned to make it their future residence.
According to The Wall Street Journal, last year’s gains in the stock market and increased wealth in high-income households are also causes of the recent surge in second home purchases.
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Joseph LaVorgna, Chief U.S. economist for Deutsche Bank Securities reiterates the renewed confidence in the sector, stating that ‘the housing market is in full-blown recovery mode’ spurring people to purchase ‘extraordinarily discretionary’ items like a second home.
Many Boomers bought their homes during a period of sustained growth in real estate in the ’80s and ’90s that enabled them to buy large, detached family homes on acres of land.
As they enter into retirement they are becoming the generation of ‘empty nesters’. Many Boomers now have grown up children, leaving them with an excess of space and money tied up in properties they no longer need.
This is sparking another trend in the American real estate market. Real Estate analysis expert Arthur C Nelson calls it the ‘great senior sell off’, highlighting the ‘…1.5-2 million homes coming on the market every year at the end of this decade from senior households selling off’ and asking ‘…who’s behind them to buy?’
Naturally the successors should be Generation X. However, this group, whose ages range from 35-44 are ‘44% poorer than counterparts of the same age in 1984’ according to Pew Research centre. The hardest hit demographic during the economic downturn, many of them were raising children in its wake and have been left financially vulnerable.
As for their successors – the Millennials – they are saddled with a record breaking level of debt in what’s been a relatively flat job market and are probably the last generation you’d expect to be buying homes.
The Millennial generation are also associated with a different set of values surrounding ownership. With many unable to afford to buy they have become ‘generation rent’ and according to The Economist are driving the newly emergent $26 billion dollar ‘sharing economy’.
However, in 2014 Millennials made up 32 percent of the U.S. housing market, according to the National Association of Realtors, seeing an increase of 28% on the previous 2 years and overtaking Generation X on the property investment ladder.
Twenty eight year old Eric Arther is just one of those weighing up the options. In an interview in Bloomberg he explains:
‘I pay $1,410 in rent for my one-bedroom apartment in downtown Denver… If I pay that much, I’d like to build some equity’.
But whilst soaring rents and the likelihood of increased interest rates has driven many to consider the option, the reality for most Millennials is a limited inventory and a lack of finances – so buying is still out of the question.
Laurence Yun reiterates this point: ‘In the past five years, a typical rent rose 15 percent while the income of renters grew by only 11 percent…Current renters seeking relief and looking to buy are facing the same dilemma: home prices are rising much faster than their incomes’.
According to Pew research, there are approximately 75 million Millennials living in the US and they are set to outnumber the Baby Boomer generation this year. The Generation X-ers are only projected to surpass the Boomers by 2028.
This perhaps explains why the youngest consumer generation is enjoying a larger share of property investment than their shackled forebears but as the first wave of Millennials reach their 30s there will be two burning questions for the real estate market:
Will sufficient numbers have enough money for a down payment and will any of the Baby Boomer’s successors be able to buy the homes they are rapidly vacating?