Baby Boomers, Retirement and Housing

You need only turn on the TV and watch commercials about reverse mortgages, retirement homes, cell phones with large buttons, and electric wheelchairs to realize that the Baby Boomers are retiring.

While this will surely be a gradual process, it still begs the question of what does this mean for the housing industry. When our economy starts to shoulder the wave of impending Baby Boomer retirements, many young adult home loan borrowers think they will see a housing market that turns in their favor.

Others fear that market might turn against them.

With so many existing homeowners retiring and passing away, there could be a larger amount of homeowners leaving the workforce when compared to the number of Generation X and Y members who are supposed to ascend to becoming homeowners themselves.

Boomers, living longer than previous generations thanks to advances in modern medicine, have re-entered or remained in the workforce longer due to the recession, lost savings, and the simple need to continue earning an income.

In an email to loans.org, Dennis Witherspoon, Associate Professor of Finance at Northwood University, explained that boomers would probably remain in the work force longer, which means they would hold onto their homes longer as well.

“This is because during the first decade of this 21^st century, investment returns were hard to come by so the retirement wealth that should have been there is not, so boomers are playing ‘catch-up,’” he said.

But finances aside, Witherspoon believes the concept of “homeownership” is enough to keep boomers in their homes, which in turn would keep inventory off the market for up-and-coming Generation X and Y homeowners.

“The boomer ‘culture’ is a homeowner culture. Some may move to condos and to warmer climates but I don’t think we will have an excess inventory of homes so I don’t think you will see home prices decline,” said Witherspoon. “Given my experience in working with boomers at the home ownership and investment levels, I think they will live in their homes and remain independent for as long as possible, well into their retirement years.”

Witherspoon’s own sentiments echo a 2012 study conducted by the Pew Charitable Trust which found little evidence for “Boomer-Impact” on newer generations. This study used data from the Census Bureau in order to extrapolate that the increased employment of older workers (for reasons such as low savings) had no impact on the hourly wages or annual income of youth.

In effect, older workers didn’t “keep down” younger workers eager for promotion or salary increases. This meant that both generations could earn income towards home loan payments; leaving no one to blame for a lack of home purchases in the near future.

“As far as the numbers of buyers are concerned, we go through cycles. This one currently is on the tail end of a buyer’s market,” Robert Bram, Senior Branch Manager with GFI Mortgage Bankers, told loans.org.

Bram continued to explain that when homes are plentiful and buyers are limited, prices decrease. When homes are not plentiful but buyers are, then prices increase. The number of buyers that are or will be seeking to purchase a home has a direct relationship with the economy and the jobless rate. 

Even though it remains to be seen if Generation X and Generation Y will have a harder time purchasing a home in 2018, Witherspoon feels that the process of buying a home shouldn’t be an easy process to begin with, regardless of generation.

“Home buying was difficult years ago but became too easy in the early 2000’s. The industry needs to get back to the basics. I think we’ve learned from our mistakes so home buying will be harder than it was in the early 2000’s but about the same as it was in prior decades in terms of difficulty,” he said.

In a forward-looking interview with Dave Zitting, CEO of Primary Residential Mortgage, Inc. he told loans.org that now is a great time to buy a home thanks to low interest rates and prices. The situation will only improve as time goes forward.

“By 2018, our country will be hopping again. We will have gotten past the final bumps in the road due to the recession, builders will have regained momentum, and homes will be worth more. I believe by 2018, the housing market will be more productive than it has since the 1990s,” said Zitting.

At the end of the day, it is important to understand that the time to purchase a home won’t come as a result of the mass retirement of the Baby Boomer generation. The best time to buy a home will come when a buyer is both personally and financially responsible enough to make home loan payments on time and take care of the costs that come from owning a home. It’s a piece of the American Dream, but it’s not a piece that can be obtained easily.