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Monday, December 7, 2015

Is it a clog or a systemic change?

One of the news feeds that I get every day comes from Realtor.com, the web site for the National Association of Realtors®.  One of the featured stories to day was about the assertion that Baby Boomers have clogged up the real estate pipeline by not acting as expected and selling their homes when they retire. The Realtor.com story was based upon a story that originally appeared on Dec 2 in the Washington Post.

The fact is that the whole real estate market has not been acting as expected after the recent Great recession. Apparently, whoever wrote the original Washington Post article decided that it is the fault of the Baby Boomers for not selling their homes and downsizing when they retired as expected ( or at least not in the numbers that were expected). A change in behavior anywhere in the real estate pipeline impacts things, but the Baby Boomers make up such a large portion of the total real estate market that a change in their behavior has an amplified impact.

What was predicted was the mass migration of the Baby Boomers from their McMansions into smaller retirement homes. That has not happened in the numbers that were forecast and that has led to few homes in their current homes’ price range being available and that has exacerbated and already
tight used housing supply. The result has been a rapid run up in home prices in the mid to upper price ranges. That has stalled out the move-up buyers who were projected to buy those Baby Boomer McMansions. The lack of movement from the middle tier has meant that many first time buyers or those moving up from starter homes had fewer homes to choose from, so they stayed put, too. You can see how this all feeds on itself.

While I agree that the whole Boomers not moving thing has had a clogging effect; I also believe that the economy has not yet recovered sufficiently from the recent recession and that the basic economic reset that the recession caused is also playing a key role.  The middle class has been largely gutted of its working middle class component – the factory worker making good money and getting lots of overtime pay to spend on housing.  The unions have been neutralized to a great extent and the remaining factory workers as a class earn less now than they did before the recent recession. That home buying power is gone and that is having an impact. The younger generations have been forced into multi-tier wage scenarios that limit their buying power and many have accepted that they will be living a different, less affluent lifestyle and that includes housing. We live in an era when it is quite probable that the next generation will not have it better than the last. The Baby Boomers may have been the last great affluent generation.

In addition to all of this, the retiring Baby Boomer generation didn’t necessarily plan well or save well for retirement. Many of them are the last group that will get defined retirement benefits; but, more of them that have been reported were in the groups that saw their retirements converted into 401K plans and other contribution-based plans. Many did not contribute enough. Now many are struggling with retirement and in no mood to sell off their biggest asset. Many still have hefty mortgages and some are still in negative equity positions, due to the great recession and their penchant for using their homes like piggy banks.  

The other issue for many Boomers who might be able to sell is the fact that the tight housing market has left them with nowhere to go. Not every retiree wants to go to Florida or Arizona to live. Most would rather be close to family. The issue them becomes finding a place to downsize into if they sell the McMansion. That is where their expectations and desires run afoul of the available housing stock of smaller sized homes. Almost all builders have been chasing the Boomers desire for bigger and bigger McMansions, with more and more amenities aimed at the owners. That means that when they go look at smaller houses, many of them are older and older homes weren’t built with the amenities of the big McMansions.

The problem is especially bad for the Boomers who are chasing the dream of moving to “small town
America”. I know because I live and sell homes in one of those idyllic small towns – Milford, Michigan. I get requests all the time from retirees who want to move to Milford, but who have unrealistic expectations about what they can buy in our little Village. They all say that they want a single floor home with a gourmet kitchen and a big master suite with big on-suite bath. Guess what? They didn’t build houses like that in the late- 1800’s and early Twentieth Century when most of our housing stock was built. Sure we have a few modern homes and some modern condos, but for the most part, if you want what you had in your McMansion you have to get out of the Village and into a newer sub, most of which put you out too far to walk downtown, which was the driving force to get here in the first place. So, compromise is the order of the day; or giving up the dream of living in Mayberry. The lack of housing to meet those expectations has been a major clog for us locally.


Are Boomers then the major clog in the system? They certainly contribute to the problem, but perhaps the current slowdown is more systemic and reflective of the change that America is undergoing economically and socially. There also seem to be movements afoot to re-urbanize, as cities like Detroit recover and start building new urban housing. There is a strong pull away from the
bigger is better mentality and a rebirth of values that have less to do with ostentatious displays of wealth and are more focused on family and relationships. Collecting stuff is out and collecting relationships is in. Shortly having a better life will have less to do with the size of your house and more to do with the size of your heart and those that you share it with. Real estate is about things, but life has become more about people and that will impact everything. Progress has too often been measured by constantly  moving up or moving on, the future will be more defined by being content with where you are and what you have and those with who you share both.  So there’s no real clog, just the beginning of a new reality.

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