Opposing Viewpoints on Boomer Influences on Real Estate Markets

In articles from two different financial websites, the Baby Boomer generation’s influence on home prices over the coming years is discussed. They seem to be taking two opposite viewpoints, but perhaps there’s another explanation for the differences in the authors’ views.

Baby Boomers and Golden Handcuffs of Real Estate

This article discusses the position in which many boomers will find themselves as they’re retiring. They have high value real estate but are cash challenged. These golden handcuffs place them in an equity rich but cash poor position. California is the state used as an example, with boomers hitting retirement with huge equity in their homes but many aren’t expected to sell and move.

With home prices in California rising a stunning 28% just over the last year, there’s a lot of money sitting in real estate held by the boomer generation. Investor demand is cited as one of the major factors contributing to price increases, while incomes and wages haven’t increased much at all. Many boomers are predicted to forego selling and downsizing or moving and instead take out reverse mortgages and live the good life using the extracted equity.

With new home construction still in the dumper, inventories are shrinking. The added factor of these boomers holding instead of selling is predicted to decrease inventory even more.

Selling Boomers May Create Another Housing Bust

A directly opposite viewpoint addresses the expectation that these 78+ million boomers will be selling their homes en masse over the next few years in order to downsize or retire to better climates or live the dream. The obvious question if this is the coming trend is who will buy these millions of large single-family homes coming on the market very soon and over a period of years?

This may not be a big negative in growth areas, but there is concern about how this surge in inventory will influence markets where growth is slow or there may even be shrinking population. The negative influence is predicted to be especially pronounced in slow growth areas with large homes that today’s buyers aren’t showing an interest in buying.

So, if we can’t have it both ways, which viewpoint is correct? Actually, we can have some of both, based entirely on the local nature of real estate and local economics. Areas like California may continue with low inventory and boomers staying put. Other areas of the country may experience the selling and moving away or downsizing by boomers and a surge in inventory. There could be a simultaneous boom and bust housing economy.