Baby Boomers Hold Nearly One-Third of Large Homes, Squeezing Younger Buyers
Three-bedroom-plus homes in one- or two-adult households are sitting on the shelves in part because many of the homes’ owners are baby boomers, reports the Washington Post. Together, these boomers hold about 28% of such homes.
Millennials with children make up the majority of heads of household with kids; however, they hold just 16% of the homes in that category. Homes owned by Gen Z parents amount to less than 1%.
New data has found another 7% of big homes are occupied by boomers living with their children. These homes can’t come on the market for families looking to trade up. This is in addition to the existing supply constraint.
While interest rates may be rising for buyers, they remain low for existing homeowners. Since 58% of boomers own their homes with no mortgage, they are less inclined to sell. Strong community bonds and preferences to live in their neighborhood of choice also limit motivation to move.
Younger home buyers are struggling to get into the market, but now they face another challenge: few affordable small homes for sale due to a wave of baby boomers trying to downsize, according to the National Association of Realtors. Meanwhile, high mortgage rates and higher home prices are keeping would-be buyers including millennials and Gen Z from making a move.
While it is still early days, there are signs that markets across the country are beginning to downsize from their 2017 peak levels. Meanwhile, here and there we are seeing some innovative pricing tests taking place, primarily by brokerage firms using platforms such as Compass that can increase available inventory by 6-12%.
Although these listings are still few and far between and extremely competitive, the marketplace is largely stagnant and biased towards older generations with large homes.
New data released reveals millennials are finally starting to buy more large homes - but not by forcing boomers off the ladder. Instead, it's largely a case of the young generation gradually gaining a bigger share of the market - currently 16 per cent, up from 5 per cent just over a decade ago, and mostly by replacing declining numbers of Silent Generation owners rather than pushing baby boomers aside.
Millennials are more likely to make up the majority of millennial households in larger, more affordable and rapidly growing areas such as Austin, but in more expensive coastal markets like Los Angeles, it is just as likely that Baby Boomers will comprise the majority of millennial households.
What This Means for Your Portfolio:
- Firstly start targeting those market sectors where downsizing is occurring more frequently, and bear in mind these markets could possibly experience higher than average transaction numbers and rental turnover.
- Monitor the latest marketing innovation (i.e. pricing tests on DLD portals by Compass) and consider how an increase in inventory could create off-plan selling opportunities and enhance the negotiating leverage in the market.
- Keep tabs on mortgage rates- if they drop there may be more listings from boomers coming to market.
- While putting your money in markets with the highest concentration of millennial buyers may not guarantee success, history would suggest that those markets will also provide the highest future returns on investment, compared to those markets that have older buyer demographics.
The US housing market is at a generational impasse, but for how long? Affordability is on the rise, and there is growing interest in easier-to-maintain homes. Whatever shifts enough buyers to move existing larger homes could dramatically alter supply for years to come.
