Boomers rule – again
Babies born after World War II between 1946 and 1964 are generally considered Baby Boomers. Since their numbers were so enormous, they had an effect on the prices of everything from baby furniture to education, with the biggest impact being on the housing market.
The Baby Boom generation is 71.6 million strong and has been getting blamed for practically every financial issue in the country. Well, maybe “blamed” is a little too harsh; how about boomers have influenced much of the country’s finances since they were born beginning in 1946. Now, as boomers are getting ready to retire and downsize their homes, comes along a world-wide pandemic, freezing them in place.
The country’s home sales have surged in 2020 to the highest level in 14 years. As we now know, the pandemic has created the desire for families to move to the suburbs and into larger homes. Historically low interest rates, slightly below 3% for a fixed-rate conventional mortgage, have only made this yearning even more attractive.
There’s just one problem – the available number of homes to purchase is also historically low, down about 22% at the end of November according to the National Association of Realtors, and the poor Baby Boomers are getting blamed again. The length of time homeowners stay in their homes has been rising for several years. According to real estate brokerage Redfin Corp., the typical homeowner in 2020 had remained in their home for 13 years. This is up slightly from 12.8 years in 2019 but well ahead of 2010’s 8.7 years.
As the Baby Boomer population ages, they are in better health, more active and retire later, allowing them to remain in their homes longer. This existing trend combined with the pandemic has exacerbated the already low number of homes on the market. When COVID-19 started, this generation calculated there was no point in retiring since there wasn’t much else to do with their free time. Likewise, there didn’t seem to be any urgency to sell a large home and downsize since their retirement plans might have changed along with everything else in their lives.
In addition, there was a lingering fear of having strangers entering their homes during the pandemic, further delaying their decision to move. As the virus grew and more buyers were looking for houses, the market became more and more competitive, adding to the Baby Boomer anxiety about selling and finding another property to buy.
Many Baby Boomers crunched the numbers and just decided it was more appealing to refinance at the extremely low rates and stay in their homes rather than face a real estate market that was experiencing some serious challenges. Naturally, this decision by the boomer bubble only made the shortage of available properties worse, with sale prices moving up as inventory moved down, and, in my opinion, this won’t end soon.
Baby Boomers who have made the decision to stay in their homes and have refinanced to do so will not have the motivation to sell anytime soon. Even if they decide to retire, so many of their retirement plans – especially travel – are likely on hold for a couple of more years while the world digs out of the fallout from the pandemic.
So, you can blame the Baby Boomers all you like, but the reality is a bad convergence of world events is having the largest effect on the real estate market. Hang in there; we’re almost on the downside. Stay safe.