Recent research provides additional color to the last entry in my on-going series on Baby Boomers and the housing market: "Cash Buyers And Optimism Counter The Notion Of An Imminent Housing Crisis Triggered By Baby Boomers."
On June 12, 2014, Fannie Mae released a study titled "Are Aging Baby Boomers Abandoning the Single-Family Nest?" This kind of research is an important starting point to understand how the aging of Baby Boomers will impact the gradual transfer of their housing wealth to the next generations. Pessimists fear that this transfer will help trigger a collapse of the housing market through dislocations in supply (too large) versus demand (too small). I have been claiming that such pessimism is overdone and misdirected. The Fannie Mae study is valuable because it delivers hard data that counters popular assumptions that Baby Boomers are automatically downsizing after their homes empty of children:
"…one key metric of Boomer housing consumption - the proportion of the population residing in a single-family detached home - has yet to decline.
In fact, contrary to the downsizing perception, the percent of Baby Boomers residing in single-family detached homes was at least as high in 2012 as at any time since the onset of the housing crisis. Even the oldest members of the Boomer generation, who have largely exited the childrearing stage and begun to retire in large numbers, show no major shift away from single-family residency."
As Fannie Mae notes, Baby Boomers are rapidly withdrawing from the labor force along with the emptying of their homes, so downsizing seems to make intuitive sense as a cost-saving step. Granted, 37% of "leading edge" Baby Boomers do not have mortgages and will feel much less cost pressure. So far, Boomers are choosing to stay in single-family detached homes:
Baby Boomers Per Capita Occupancy Rate of Single-Family Detached Homes
Baby Boomers Per Household Occupancy Rate of Single-Family Detached Homes
Source: Fannie Mae
The current data are suggestive but what can be said about the potential future? Fannie Mae assumes these numbers mean Boomers are staying in the SAME single-family detached homes. As I noted in the previous piece, Boomers may be starting to show up as cash buyers of homes as the equity in their current homes increase with the housing recovery. Thus, it will be important in future research to disaggregate these numbers. Moreover, I quoted a survey suggesting 43% of Baby Boomers intend to stay in their current homes.
Jed Kolko, Chief Economist of Trulia (TRLA), took Fannie Mae's research one stop further to try to answer the question on future downsizing (it was Kolko's article that pointed me to the Fannie Mae research). Kolko used trends in residency for multi-unit housing to suggest that Boomers will indeed not be moving en masse anytime soon…at least not to the traditional targets of downsizing in apartments and condos:
"The big question is what happens longer term: are we about to hit a wave of baby boomers selling their single-family homes and moving into apartments and condos? It's unlikely, for two reasons: baby boomers are still years away from the age of downsizing, and the long-term trend shows that older households today are less likely to downsize than older adults in the past."
Using data from the 2013 Current Population Survey's Annual Social and Economic Supplement (CPS ASEC), Kolko shows that percentage of households living in multi-unit housing declines sharply and consistently until the 70 to 74 age bracket, the age bracket boomers are about to enter. By 80 to 84, these households still have a lower multi-unit occupancy than 40 to 44 year olds. If these patterns persist, there will be no en masse exodus of Baby Boomers from single-family detached housing for at least the next 15+ years. That point is well beyond the approximate 2020 timetable of the start of the supposed "Senior Sell-Off."
Kolko next tackles the question of whether it is safe to assume that Baby Boomers will behave similarly to the age cohorts just ahead of them. The trends shown in the chart below suggests the answer is "yes."
The preferences for older Americans has turned away from multi-unit housing
While Baby Boomers have shown a slight increase in preference for multi-unit housing since the recession, the age cohorts ahead of them have shown a distinct long-term declining trend in the preference for multi-unit housing. The chart above is likely showing a cyclical trend running up against a secular trend, meaning the secular trend is the more likely long-term outcome. Again, this is significant assuming that multi-unit dwellings remain the preferred choice for downsizing. (Note that Kolko clarified for me via a tweet response that nursing homes are not included in the stats on multi-unit dwellings).
Putting everything together, once again, we see it is far too extreme and premature to conclude that Baby Boomers are on the verge of dramatically damaging the housing landscape of America anytime soon. In fact, we seem far from such drama if it ever occurs (I remain dubious). In fact, I am now starting to believe that Baby Boomers are much more likely to continue to serve as a stabilizing force for the housing market for years to come, increasing the opportunity to invest in housing in these early years of the recovery.
Be careful out there!
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