[Originally published 5/2/2014]
I have to admit, I’m exhausted.
I just spent much of the week working a second job — one that was both unpaid and unofficial.
My sister joined me, leaving her university professorship for an unwanted “vacation.”
We both descended upon the house we grew up in — and emptied it out.
Why? That’s simple — my father is getting ready to put the place on the market and move into a much smaller home. Some place without stairs and without a lawn to keep up. Somewhere more suitable for him since he’s now an aging boomer.
He’s downsizing. And, given the size of his generation, he’s participating in one of the biggest shifts this country has ever seen.
Bye-Bye House, Hello Condo
Boomers have always had enormous economic clout, thanks to their enormous demographic size. This has been said so often it doesn’t need repeating, but it can be helpful to see how the aging of boomers is going to play out:
Over and over, we hear about how aging boomers will be a boon for all sorts of industries. From healthcare to senior living to leisure travel, a population this size hitting retirement will be a godsend.
But there’s one thing boomers won’t be buying. It happens to be the very thing they’re selling as well — houses; specifically, single-family homes.
This is great news for retirement villages and accessible condos, but might not be such a positive thing for the overall health of real estate.
Indeed — as housing stats have cooled off this year, a number of analysts have taken to blaming the glut of supply with the shrinking of demand as simple economics, they say.
Too simple for me.
Passing The Torch?
There are a number of paths real estate could go from here — but it’s probably not going to be driven by demographics. It’s going to be driven by culture.
Here’s what I mean: while boomers get all the ink, the truth is, millennials already outnumber them.
As you can see, the gap just increases each year, reaching 22 million by 2030. So there are more than enough new people to fill available housing, and then some.
However, there’s another problem. It might not actually be a problem — it might just be a new paradigm.
Millennials aren’t that interested in owning a house.
First, they graduated from school with much greater debt — making it harder to save up for a down payment. Not to mention, they loathe the idea of adding another big bill to their monthly expenses.
Next, jobs have become much more fluid. Long gone are the days of working 40 years at a single company for that gold watch. Most youngsters live in a world where spending five years at one employer is considered a long time.
That means more job-searching. And owning a home ties you to one area — greatly decreasing the opportunities you can pursue.
But, most of all, millennials are getting married much later, if at all:
A young family — in need of stability — has always been one of the greatest drivers of real estate purchases. Without that young family, the need to buy is dampened. Renting costs about as much — especially since owning a home tends to be a flat investment, once accounting for inflation.
And renting provides a lot more flexibility.
Long-Term Trouble For Real Estate?
So — does this spell long-term trouble for real estate?
I don’t think so — and let me tell you why:
I don’t think that millennials have forsaken home-ownership as part of the American dream. I think it’s just shifted back a bit.
I’m reading tea leaves here — but the general pattern for Americans is to do everything a bit later than the generation that came before.
Maybe that’s because our educational years keep expanding. Perhaps it’s because our lifespans are extending as well. But, look around, you’ll notice everything gets pushed back.
Sluggish Market The Time To Act
My hunch is real estate will be just fine — there are plenty of young potential buyers out there. And while there may be some short-term pain while millennials fill out that potential, it will come in time.
If you agree with that assessment, you’ll want to invest when the real estate market is at its most sluggish, over the next decade or so. (If your investment timeline is shorter than that, you should probably avoid the general sector.)
But if you think it will play out differently — and again, I’ve got no proof, just a hunch — I’d love to hear what you think will happen.
This is one of the biggest questions real estate has ever faced — and, as a large part of the economy, it has huge repercussions for America’s GDP.