While some Americans are threatening to leave the US for the next four years, some aging Baby Boomers are ready to ditch California for a better life. How will that transition affect real estate, not only in California, but also in the areas where they’re headed?
America is in transition and so is the real estate market, but not just from the recent 180 degree turn on Capitol Hill.
The oldest Baby Boomers have turned 70, and as many as 10,000 people are retiring every day. Many are considering leaving their big homes and expensive neighborhoods, for more affordable options.
This trend could impact high price markets, and drive up pricing in the more affordable areas where they’re bringing California dollars.
The First Tuesday Journal took a look at the graying of California and what to expect when more Boomers retire.
The Boomer transition has already begun. Boomers are those born between 1946 and 1964 so many have already turned 70. Many people from this generation were forced to postpone their retirement after the Great Recession wiped out their 401k accounts, along with their home values. But now that the economy has mostly recovered, many are ready to put their retirement plans back into action.
The Journal says that last year, people age 65 and older accounted for 11.5% of California’s population. That was a 4% increase from 2014. And the Journal says that three-out-of-four Baby Boomers are homeowners and will not likely turn into renters.
What’s likely to change is the kind of home they want to live in, and where. The Journal says many live in larger single-family homes they’ve outgrown and are located far from city conveniences in the suburbs.
The Journal says many Boomers will want to move closer to the city centers, public transportation, restaurants, entertainment, family and or friends. Many will also want to downsize their homes to something that better fits their retirement needs. The Journal says as those Boomers hit the real estate market, there’s going to be a big increase in home sales.
The other half of that equation will be the Generation Y’ers who are also feeling more prepared to make a home purchase. Many of them will want the family homes that the Boomers are vacating. So this could be a perfectly-timed symbiotic relationship.
The Journal expects this mass relocation of the two generations to really pick up speed from 2019 to 2021. It says: “This Great Confluence of retirees and Generation Y’ers will create a fluid and stable housing market for California.”
The Journal says that 65 to 75 year-old Californians are more likely to own homes than any other age group. Even though California has some of the highest home prices in the nation, these homeowners will have accumulated equity in their homes. Combine that with a lifetime of savings and the Journal says, they will have enough wealth to exert a strong influence on the California housing market.
This is a big shift from the past twenty years. The Journal says the generations born during the Great Depression and World War II, from 1915 to 1935, were not a large group. It says they didn’t have the numbers needed to “remold the housing market in their own image” like it expects of the Boomers.
The Boomers have had a disproportionately strong influence on the housing market throughout their lifetimes. First, they began renting apartments in the early 1980s. That drove up rents and lead to apartment overbuilding. And then toward the late 1980s, they started buying single family homes, and that also lead to a surge in home prices and overbuilding — all followed by the 1990 recession.
Then, in the late 1990s, Boomers began to put their money into the recovering stock market. And that happened at a volume and pace that put the market into the “bubble mode”, especially with the interest in high tech. As we all know, that bubble burst with great fanfare in 2002, leaving portfolios shattered once again.
Now, Boomers have recovered from the latest downturn, and are ripe for retirement. Many will cash in their stocks, and due to the huge numbers of Boomers, that will put the markets into a mode of stagnation. The Journal expects this draining of retirement funds from the stock market to last about 15 years.
What are some of the changes we’ll see in the housing market?
The Journal says there will be an increased demand for senior-only housing. It also foresees the creation of more in-law units or free-standing casitas or granny flats to accommodate aging relatives. The vast majority of Boomers will continue with homeownership in some form.
The Census Bureau reports that 50% of senior citizens who relocate choose to remain in their communities. But some Californians may want or need to relocate to an area where the cost of living is lower. Target states are often Florida, Texas, and Arizona. Some may also head to New Mexico, and Mexico.
The Journal says that real estate brokers and agents should begin preparing for this migration right now. Even those that are moving away will need help with the selling of a home, and referrals to cooperating brokers and agents.
The Journal is forecasting that the Boomer buying activity will surge in 2018, and peak between 2019 and 2021. During this time, it says Boomers will release thousands of single family homes into the market , hopefully just when Generation Y’ers will be ready to buy those larger homes.
You can also expect a boom in remodeling at that time, as those younger buyers will probably want to be updating those older homes. Many want updated, commuter-friendly properties that are close to their jobs and city centers.
As real estate investors looking for areas that are poised for growth, buying property in Florida, Texas or Arizona will likely be a good bet.