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Boomers to swamp housing market?

By Judy Martel · Bankrate.com
Monday, May 7, 2012
Posted: 5 pm ET

It could be a buyers' market for years to come. In addition to the pending foreclosures that will continue to depress home prices when they hit the market, many experts predict baby boomers will begin flooding the market with homes for sale. Meanwhile, many younger potential buyers are hesitant to become homeowners and are renting instead.

A report by the Bipartisan Policy Center says as boomers downsize, approximately 26 million homes will come on the market by 2030. But younger generations are stymied by unemployment, tight credit, higher levels of debt than their parents and loss of confidence caused by the housing bust.

The report points to the Northeast and Midwest as areas that will feel the effects the most, and says it's already happening in some states hard-hit by the recession, such as Michigan.

But not everyone is worried. Walter Maloney, of the National Association of Realtors, told CNBC that boomers unloading their homes will not have a big effect on the market because there is still pent-up demand for homes. In fact, the number of homes on the market has declined by almost half what it was a year ago. Greg McBride, CFA, senior financial analyst at Bankrate, says there are still plenty of foreign buyers interested in U.S. properties and cautions against predicting whether seniors will have an effect on the housing market in the coming years.

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22 Comments
Stick to fundamentals
July 05, 2012 at 6:58 pm

This is an interesting article - a couple of points to consider for those weighing this decision:

- Don't forget the tax implications (favorable) of owning a home. This doesn't address the home appreciation/depreciation issue, but it does impact the cash flow. For example, at the 30% tax bracket, a monthly rent payment of $1,300 is basically the same as a $1,750 mortgage payment. This mortgage payment is equivalent to a $375k purchase with 20% down (30 yr.) at 4%. And you are paying yourself (in the form of principal) every month. It doesn't include insurance (although a renter incurs renter's insurance - usually a bit less expensive than homeowner's). One caveat - regulatory changes regarding the tax treatment of mortgage interest could impact this consideration; i.e. if the government decides to disallow this from a tax perspective, it would have a material impact to home values.

- Another thing to consider is that someone is willing to hold a mortgage on the property you are considering renting; it might be worthwhile to ask why they are willing to do this?

- There are some great bits of advice in the comment threads; I would just add that if you are not expecting to be in an area for 8-10 years (at least), you may want to consider renting as opposed to owning. Certainly many people have been able to enter and exit a market within 5 years with great results, but the current situation is a stark example of the other side of that coin.

- Lastly, we should focus of fundamentals. Fundamentally, you cannot spend more than you earn and, over time, remain solvent. Similarly, in a stable environment, what is a fundamentally reasonable rate of appreciation of a home? Hopefully we will never see double-digit growth again (proving we would have learned nothing), but certainly modest single-digit growth is reasonable.

- On a personal note, my wife and I bought our home (California :( ) 8 years ago and promptly saw the value balloon and then tank... we are still slightly underwater; but, rents in the area have skyrocketed and are now several hundred dollars more than our monthly mortgage payment. This is a good reminder of the earlier point, though - it's important that the selling horizon is far enough away to allow for shifts in the market... selling now would hurt.

For what's it's worth.....

sanderdog
July 03, 2012 at 11:41 pm

Now that people realize a house is not a piggy bank some rational home buying can begin. A house purchased in which you intend to live for years in a stable neighborhood at a reasonable price is still a hedge against inflation. Rent is just money gone forever. With a house you get a tax deduction and a modest increase in price along with inflation because a house is just made up of materials, labor and land all or which rise in value over time. EXCEPT when unqualified people and bad over valued property or just plain inflated property is sold. Right now a 30 year loan is less than 4%. Buy and live in it. Set on it. Do not expect a big profit in 6 months or a year.

Don R
July 03, 2012 at 8:20 am

JimBo is a dumbo with no knowledge of the economic WORLD issues.

Paul
July 02, 2012 at 10:51 pm

Most "boomers" I know have not only not saved a nickel, they also continue to refinance right up until the day they retire. Look at the demographics, the older northeastern states with the highest house prices are primed for the biggest fall.

As far as buyers, foreign or otherwise, high end stuff is one thing, but more realistically a lot of these older folks may be forced to sell and rent back from REIT's designed for this purpose. They can only hope to die before the money runs out.

JimBo
July 01, 2012 at 7:05 pm

could it be any worse that what we now have in the white House??

Jan Monroe
June 27, 2012 at 5:37 pm

This is an interesting article that raises again the question of whether there will be enough buyers when the boomers retire. I don't think there will be enough foreigners buying american housing to make any difference (except for the very expensive top end housing). A demographics magazine raised this issue 30 years ago and the question then was whether there would be enough buyers, not whether the younger generation could afford to buy. The economy is sure to impact the buyers but with lower interest rates forced down by the FED they may be able to afford what they want especially if the housing forclosures stretch out for another eight years forcing housing prices down. The impact on the boomers appears to be negative regarding the future value of their housing. On the other hand far fewer boomers are down sizing than expected thus people remain in their homes longer especially if they cannot get the value they want out their house.

Steve Lowen
June 27, 2012 at 2:09 pm

One element that appears to be missing is the effect of foreigners purchasing property in the U.S. This once tiny factor has now blossomed into a virtual flood of the wealthy, and near wealthy from Greece, France, Spain, Mexico and other troubled countries buying here. They understand value, and while it is still partially true, believe that we have not yet succumbed to the burgeoning collective spirit and soak the rich foolishness.

Harley Spoon
June 21, 2012 at 4:29 pm

Jake, we don't build mass housing in this country to be permanent...Out builders throw up houses that begin deteriorating as soon as they are on the market...We are a throw away society...Local, state and federal government's laissez faire approach to home builders and unregulated lenders and the crooks in the homebuilding and unregulated lending businesses caused the Great Recession which resulted in all those people having to lose their homes. While Americans want to look for a scapegoat--like a President whose hands have been tied by the right wing establishment in this country--Americans need to look into their own mirrors to see the culprit...Now, Americans are about to put one of the sleaziest of all capitalists--Willard Romney--in the White House with the sleaziest Teapublican congress in history at his beck and call. Americans will deserve the mess that will result...