Are Baby Boomers to Blame for Low Housing Inventory?

53 Replies

There are not enough houses to go around and I think I know why. 

Some have suggested the pandemic has caused the low inventory in housing, but with interest rates so low and houses selling above asking, why would any homeowner not want to sell during this time? One known statistic is that the median tenure of living in a house has been steadily increasing and is up to 10-12 years of tenure in a home. The highest it has been in some time. Some data supports that my parent's generation (the baby boomers) are STAYING PUT as that generation is approaching retirement age. Plus, with interest rates so low, refinancing a home has been a great way to decrease your monthly payment. I know, I just refinanced on mine, pulled cash out, and lowered my monthly payment.

So what does this mean for the housing market going forward? Is this analysis accurate or are there other primary factors to consider? 

Thoughts?

The low inventory problem has been a chronic one since the Great Recession, and the pandemic only amplified the problem. More sellers decided to wait and see what happens and decided to not list. Combine the lower-than-normal supply of homes because of the pandemic and the dramatically low interest rates, you have buyers feverishly competing for the limited supply of homes in the market which has driven prices up and made things even less affordable for the average buyer.

I think the primary reason there is a nationwide shortage of housing is due to the fact many homebuilders went out of business because of the Great Recession and demand plummeted for housing, leading to less building.

The homeownership rate fell from 67.1% at the start of the decade to a post-recession low of 62.9% during the second quarter of 2016. As a result of this demand environment, multifamily construction was the first sector of the industry to recover to relatively normal conditions, which were achieved in construction terms by 2015. Those that decided to opt out of homeownership obviously became renters.

Consider the following decade-based totals for single-family home construction:

1960s: 9.3 million starts

1970s: 11.4 million starts

1980s: 9.9 million starts

1990s: 11.0 million starts

2000s: 12.3 million starts

2010s: 6.8 million starts

It's a good question though why a lot of sellers are choosing to stay on the sidelines when it appears houses are selling at a premium nationwide. I'm sure the remote nature of work has caused people to value their homes more highly for one. Sellers that are older may be more wary of the coronavirus and don't want to make a move during the uncertainty.

TLDR; Great Recession ---> homebuilders went out of business, economy contracted causing housing to be less affordable,  decrease in demand for housing = under-built markets and less inventory.

@Paul De Luca Thanks for your post!

The 2010s took a hit! I am curious where you found that information. New construction plays a part, but starts have been steadily increasing the last few years before COVID and are going back up. https://www.census.gov/constru...

New construction is more "upper-tier" and typically sells at top dollar/sq. ft. Yet the census bureau has reported 8-9 million first-time homebuyers entering the market in the next few years. So definitely a combination of many things going on.

The market is hot, but not at every price point, I am seeing more entry-level homes flying off the shelves than anything.

Originally posted by @Forrest Faulconer :

@Paul De Luca Thanks for your post!

The 2010s took a hit! I am curious where you found that information. New construction plays a part, but starts have been steadily increasing the last few years before COVID and are going back up. https://www.census.gov/constru...

New construction is more "upper-tier" and typically sells at top dollar/sq. ft. Yet the census bureau has reported 8-9 million first-time homebuyers entering the market in the next few years. So definitely a combination of many things going on.

The market is hot, but not at every price point, I am seeing more entry-level homes flying off the shelves than anything.

Source: http://eyeonhousing.org/2020/0...

I was actually trying to find an article I had already read on the decline in nationwide inventory since the recession but I wasn't able to find it. This website has some great info too and the chart over a 25 year period is very telling https://tradingeconomics.com/u...

It's been over a decade since the crash and housing starts are still only a fraction of the pre-crash levels. You are right in that many millennials, a historically large generation, are poised to enter the market as buyers with the older millennials in their late 30s and many more of them in their early 30s. I forget where I read it but I believe the average age of a millennial homebuyer is 31. Obviously if the restrictions with COVID continue with the changes in lifestyle accompanying it a larger portion of those buyers will likely flow to the suburbs.

Some more good stats from NAR's 2020 Home Buyers and Sellers Generational Trends Report

"Millennials still make up the largest share of home buyers at 38 percent: Older Millennials at 25 percent and Younger Millennials at 13 percent of the share of home buyers. Eighty-six percent of Younger Millennials and 52 percent of Older Millennials were first-time homebuyers, more than other age groups."

 

Originally posted by @Paul De Luca :
Originally posted by @Forrest Faulconer:

@Paul De Luca Thanks for your post!

The 2010s took a hit! I am curious where you found that information. New construction plays a part, but starts have been steadily increasing the last few years before COVID and are going back up. https://www.census.gov/constru...

New construction is more "upper-tier" and typically sells at top dollar/sq. ft. Yet the census bureau has reported 8-9 million first-time homebuyers entering the market in the next few years. So definitely a combination of many things going on.

The market is hot, but not at every price point, I am seeing more entry-level homes flying off the shelves than anything.

Source: http://eyeonhousing.org/2020/0...

I was actually trying to find an article I had already read on the decline in nationwide inventory since the recession but I wasn't able to find it. This website has some great info too and the chart over a 25 year period is very telling https://tradingeconomics.com/u...

It's been over a decade since the crash and housing starts are still only a fraction of the pre-crash levels. You are right in that many millennials, a historically large generation, are poised to enter the market as buyers with the older millennials in their late 30s and many more of them in their early 30s. I forget where I read it but I believe the average age of a millennial homebuyer is 31. Obviously if the restrictions with COVID continue with the changes in lifestyle accompanying it a larger portion of those buyers will likely flow to the suburbs.

Some more good stats from NAR's 2020 Home Buyers and Sellers Generational Trends Report

"Millennials still make up the largest share of home buyers at 38 percent: Older Millennials at 25 percent and Younger Millennials at 13 percent of the share of home buyers. Eighty-six percent of Younger Millennials and 52 percent of Older Millennials were first-time homebuyers, more than other age groups."

Good stuff! Oddly enough, I am 31, will look into those articles!

@Forrest Faulconer Maybe baby boomer investors who bought entry level homes as investments during 2008-2013. Now they have a choice of selling for top dollar and paying capital gains and depreciation recapture taxes only to put the proceeds in a .8% CD or hold as a cash flowing inflation hedge and allow their kids to inherit the property on a stepped up basis.

@Forrest Faulconer

Take a drive through Philly or any major city for that matter and you will see plenty of available and cheap housing. The problem is much of it is in disrepair and in largely blighted neighborhoods. The houses are there!

Where I invest there are plenty of houses to buy.  Just they will take double the cost of the house to fix it and make it livable.  

Where I live there are plenty of houses to buy, and about half of the houses are second homes for folks who live in Nashville or Knoxville.  So there is not a shortage everywhere, but its older housing stock that is available, at least in some places.

My parents held onto the last 2 rental homes they had, not because they still wanted them but because of the capital gains taxes. They had bought them in 1957 and 1963, one for $5500 and the other for $15,000.  

After my mom passed away in 2016 they each sold for $375k. VERY glad they were in a Trust and has the basis reset! Even better, when the Trust was closed the beneficiaries got to have the losses from the sell transferred to each of them as their own capitol losses. The losses were for things like the commission on the sell, closing costs. Its ads up! So most of the beneficiaries can use $3k each year on their taxes until it is used up.

If the government wanted to free up housing held by older folks, who likely have owned the property for decades, the government should say that there will NOT be any capital gains taxes for any house that is sold, lived in, investment, whatever.  More people would think about selling then.  It would free up housing!

Boomers have been around for a while.  It is more likely people not wanting to sell during a pandemic combined with low interest rates and people who had been thinking about buying a house doing just that.  Also spending more time at home seems to have resulted in more people wanting to find a new home.

In Canada we have a similar demographic, low interest rates and have seen places selling a lot faster in the last few months because things were shut down for a while.  We have lots of new houses being built in some of the towns I am familiar with (literally entire subdivisions).

@Max T.

Would like to visit the Northeast someday! But yes I’m sure there are several areas in disrepair and perhaps several more to come.

Btw, are ‘true’ philly cheese steaks really made with easy cheese??

Forrest

"but with interest rates so low and houses selling above asking, why would any homeowner not want to sell during this time?"

Answering this question is quite simple.

They sell their house, now they have to buy another house in the same extremely competitive market they just sold in.

So many of my neighbors are selling and "upgrading" their homes because it's a great time to sell, BUT it's not a great time to buy. So they sell their homes and buy something 1000sft larger, that's more expensive but they got cheap financing. To me, that doesn't make sense. 

Only reason I'd sell right now is if I found an off market deal that made more financial sense than where I'm living now. 

"but with interest rates so low and houses selling above asking, why would any homeowner not want to sell during this time?"

Answering this question is quite simple.

They sell their house, now they have to buy another house in the same extremely competitive market they just sold in.

So many of my neighbors are selling and "upgrading" their homes because it's a great time to sell, BUT it's not a great time to buy. So they sell their homes and buy something 1000sft larger, that's more expensive but they got cheap financing. To me, that doesn't make sense. 

Only reason I'd sell right now is if I found an off market deal that made more financial sense than where I'm living now. 

@Forrest Faulconer I think there are probably more regional factors at play here. In Washington state we havent built enough new units to keep up with the population growth. Between 2000 and 2015 there were 225,000 housing units that should have been built but were not. There's some studies cited in my blog that show the data. https://www.soundmultifamily.com/blog/thoughts-housing-shortage/

There are multiple reasons why we havent been building enough in Washington... increased regulation is the one that could be controlled the most but isnt (about 25% of a builders budget is just getting thru the red tape). Construction costs, construction labor shortage, zoning laws are also playing a part so I dont think blaming the boomers is quite fair.

In California, we have prop 13.  Not wanting property taxes to go up is a big reason to stay put.  And everything is expensive so what's the point in selling unless you are going to leave the state.

As far as investments, if there was an "appreciation forgiveness" tax break for SFH's I bet you would see a lot more investors selling right now.

@Forrest Faulconer I don't see how baby boomers are responsible. The housing crash is to blame for lower inventories. New construction fell to near nothing after the housing crash and it still hasn't recovered. Many builders went out of business and entire developments were abandoned. The problem didn't show up right away because millennials were not buying houses right after the crash. Then over the last few years millennials started chasing housing, but the supply was not there. There is also some effect from long term and short term rental conversions. As more people seek to become landlords, it takes away owner occupied inventory. I am not saying I would blame the millennials, but if you are going to hang it on a generation, they are the ones driving the most demand. I guess you can blame baby boomers for staying in their homes, but where exactly would they go? Even if they buy another house, it doesn't fix the overall inventory issue.

Speaking for my area, boomers are not the problem. I live in Northern Nevada, and we were hit very hard in 2008. Now getting housing subdivisions approved are much more work. The cities are a little gun shy with fear of over building. The economy is booming. We are 700 jobs away from out pre Covid levels. Rentals have been in short supply for many years. Rents are up 50% over the last 6-7 years. 

Even if boomers were to blame, you think they owe it to you to give up their houses so you have "inventory"?

If you want to look for someone to blame then why don't you, more accurately, have a look at the central bank. Those cheap rates you are looking at?- ya, so is everybody else, and their brother, and their brothers friend.