Sunday, September 10, 2006

Baby Boomers and Housing

The 2008 retirement of the Boomers born in 1946--the first year of the Boom-- has been drawing a lot of media attention: if Medicare and Social Security are running huge deficits now, what happens as millions of Boomers start retiring and drawing their entitlement benefits?

What happens to the housing market when Boomers start selling off their primary residences and investment properties? Given that the generation behind the Boomers is much smaller in number, who exactly is going to buy all those millions of properties? What if the supply of housing for sale swamps the demand, not just for a year or two but for a decade or two? What happens to the price of any commodity when the over-supply is basically permanent?

Then there's the financial assets, stocks and bonds. As Boomers start drawing upon their IRAs and 401K plans, guess how they will raise cash--by selling the stocks and bonds in their retirement accounts. Selling them monthly, year after year, or liquidating them in huge chunks to pay retirement or healthcare costs. What happens to the stock and bond markets when there is an unceasing wave of relentless, decades-long selling by millions of retirees? Exactly who will be the buyers of the hundreds of billions in stocks and bonds which will soon be liquidated?

The saying is, "Demographics is destiny," it speaks to the power of raw numbers and simple multiplication. Programs such as Medicare which were designed in the 1960s to pay modest sums for the care of a few million poor elderly are now on the entitlement hook for tens of millions of oldsters, millions of whom are loaded, wealthy, rich, call it what you will--and their care is anything but modest.



Blogger hemorrhoidforhousing said...

my neighborhood in pleasanton is probably populated with 35% original owners who bought their houses in the 60's. They are all in their 70's or older now and starting to die off or go into homes. They aren't out buying investment properties..

4:02 PM  
Blogger The Scribe said...

You've posed some excellent questions. I hadn't thought about the impact of boomers selling their large houses when they are getting ready to downsize. The market will be flooded with properties.

7:08 PM  
Blogger buyer2be said...

"Given that the generation behind the Boomers is much smaller in number"

I think we need to deal in real numbers. I have used to agree with that statement too, but now am not totally convinced as to the degree of impact.

The fact is that about around the same time Boomers are thinking about selling off more, their children - the "echo boom" (aka Generation-Y" is coming into the market.

Add in that Gen-X'rs are there too, and that many Boomers are not actually not like the norm to sell out of their property and may actually stay in them much longer then you think (someone say 60 is the new 40?) - I am starting to not see this big hole in the ground as some seem to say.

10:23 PM  

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