Will Baby Boomers Start Selling Their Homes for Liquidity?

The baby boomers are reaching the age where they need to decide between asset ownership and liquidity. A growing percentage of this group will use up their savings “between jobs” after age 50 and before retirement. They will go through the process of liquidating their assets at prices that are much lower than a few years ago in order to add to future monthly income.

With over 75 million baby boomers looking ahead at uncertainty, more job shortages for older people, and a largely unfunded Social Security and Medicare system (especially Medicare), they will begin to consider how to get liquidity from their hardest to liquidate assets – their houses. Social Security checks now average about $1100, and for a large percentage of these people this is what they will have to live on.

Sustainability of the existing financial lifestyle among the boomer group will probably be restricted to about 10-20% of the overall group. The rest will need to liquidate assets, especially aging houses, to pay monthly expenses and cover rising healthcare premiums.

The biggest decision for most will be WHEN they sell their houses if they are homeowners. This could easily lead to a large increase in the number of listed homes over the next decade where, unlike before, the seller is not the buyer of another home. It could also lead to many who do have assets (the top 20% probably have around $800,000 in assets) selling second homes and not replacing these homes.

The impact of these changes in homeownership and income will be a big increase in demand for low cost rental housing (under $600 per month with utilities and taxes), a portion of the market that is largely unavailable today.

Since 2000, according to reports created by the former Comptroller of the United States, David Walker, the total liabilities of the U.S. have grown from $20 trillion to $53 trillion by 2007. This number can’t be paid, so the issue that faces the investment community in the U.S. is how to react to what amounts to undisclosed future cuts that will have to be made in programs. Most of these liabilities are for unfunded Social Security and Medicare (especially Medicare). Medicare reached “Warning Status” recently, which requires the new President to make changes to make the program solvent in 2009.

If taxes are raised, it will slow the economy. If benefits are cut, a large portion of the population will have to raise their savings rate, sell assets, and cut spending. Which will be chosen, or will it be a combination?

The Peterson G. Peterson Foundation web site, where David Walker is now CEO, has a great citizens guide for those readers who really understand the scope of the debt issues confronting the U.S. and its financial markets.

The way this issue is resolved will have a big impact on the housing business for the next decade, and on our economy for an even longer period.

Disclosure: Mr. Eckler has no investments, long or short, in housing stocks

Comments

[Griz:]

Excellent summary James, but somewhat understated. See this link for emperical evidence to support a much graver scenario than you describe:

pdfserve.informaworld....

2008 Nov 28 09:02 AM

[Griz:]

Oops try this link instead:

www.informaworld.com/s...

2008 Nov 28 09:04 AM

[investor88:]

Another nail in the coffin for the boom boom scenario, it will be sober times many years ahead.

2008 Nov 28 10:39 AM

[WadeS:]

Question: I got to the Peter G Peterson site (petersoninstitute.org) but could not find anything on Social Security or Medicare. Did I go to the wrong site, or just not find the material?

2008 Nov 28 10:40 AM

[JackR:]

The boomers still have to live in their houses. Most are with fairly advanced mortgages, they are liquidating their stocks, and other investments (such as commercial real estate) before liquidating their primary residences. That said, when the boomers start retiring, real estate may never recover...

Check out the amount of Pomona warehouses for lease on the market. www.orealo.com/wsp/cit...

There's a lot, and as a primary warehousing location for long-beach imports - the economy just doesn't seem to be improving.

2008 Nov 28 08:00 PM

[perceptions...:]

Griz,
Very good article, but I suggest the timeline may be a little out, I think 2005 was when the Boomer effect cut in as far as real estate.

That was actually what started the so called sub prime mess, in addition to the usual greed.


On Nov 28 09:04 AM Griz wrote:

> Oops try this link instead:
>
> www.informaworld.com/s...;fulltext=713240928
>

2008 Nov 29 01:02 AM

[AlexR:]

Liquidation is not the only option. Perhaps reverse-mortgages will grow in popularity? Or parents renting out rooms to their grown children?

2008 Nov 30 12:42 PM

[Kunst:]

Inflation/devaluation is the only answer. The Boomers will get their money, but it won't be worth nearly what it used to be, or what they expected. Check out what happened to pensioners in Russia after the fall of the USSR. The ruble lost 90% of its value and those who counted on the equivalent of Social Security were destitute.

2008 Dec 01 02:47 AM

[neocon4jesus:]

I'm glad I live in gotham WI. far away from all the bubble bath economic soap stains.

don

2008 Dec 01 07:11 AM

[Knucklehead...:]

You need to check on Peter G Peterson and the Peter G. Peterson foundation. While I agree with most of what the foundation says. Peter G. Peterson is definitely in the belly of the corporate beast and the New World Order. Watch out for these guys. I would not trust them because Peterson the head or member of the following groups...

Blackstone Group founder,
Council on Foreign Relations - Founder,
Pilgram's Society member,
FED Reserve Bank Chairman,
Carlyle Group Member,
Blackstone group held the mortgage for WTC7,
Socialist International - Brandt Commission member,

These are the most influential NWO members research the Pilgram Society. Birds of a feather flock together.

Some good links to check who owns who -

www.namebase.org
www.politicalfriendste...
www.mapper.nndb.com

Knucklehead Smith

2008 Dec 01 05:31 PM

[mizmolly:]

Knucklehead Smith, come on! You don't actually believe in that whole conspiracy theory crap about all those organizations, do you?! I had a family member who was on the board of the KS Fed. Reserve. There is no grand conspiracy. In fact, given all our economic problems, it seems NO ONE is in charge and there isn't any cabal working either. Everyone is asleep at the wheel.

2008 Dec 01 06:46 PM