People who are part of the “baby boom” were originally those that were born straight after the Second World War. However, when we talk about baby boomers now, we mean those born between 1946 and 1964. These people are a very important group. Not only have they all started retiring (they will all have reached retirement age within the next decade), they are also the wealthiest population group in terms of property and other assets. Because of this, they will invest the real estate market over the next decade. The question is, however, how they will affect the market.
The Theory of Scarcity
The first theory is that the behavior of the baby boomers will lead to a situation of real scarcity.
“Boomers in many areas are sitting on real estate worth a fortune, but they don’t have a lot of cash; the “golden handcuffs” of real estate riches they can’t afford to sell. If they sit on their homes, inventories available for buyers will be reduced and home prices will improve with this scarcity of supply.”
According to this theory, there will be an increased demand in rental properties. Because demand will be up, but supply will remain stagnant, rental prices will be driven upwards. This is good news for investors, although perhaps less welcome news for regular people who are looking for a property to rent.
The Theory of Demand
The other theory is that baby boomers will not sit on their properties. Instead, market analysts believe the boomers will soon sell up. They will want to move to more rural areas where they can relax and enjoy their retirement. Or perhaps they want to stay in their current neighborhood, but downsize now that the children have moved out and they generally don’t need as much space anymore. In this theory, there will be an increased supply in certain types of houses, and an increased demand in a different type or property. This will be a real estate market of buy and sell, in other words.
“The vast majority of these folks still want to own property rather than renting so they are looking at condominiums. It is expected that condominiums in urban areas will continue to be a popular choice for many retirees.”
The Link to the Federal Reserve
One last thing to bare in mind is that it is not all about the behavior of the baby boomers. The reality is that both theories are probably correct. There will be some baby boomers that will continue to sit on their property, and some others that want to sell and downsize to something more posh and upmarket. However, it isn’t just about their behavior, it is also about the Federal Reserve and the license to print money they have given themselves.
“The Fed has unlimited digital printing power and they are now the backbone of over 90 percent of all mortgages. They are willing to keep rates as low as possible until the entire government loses credibility (which sadly, seems to get more and more real every year). It is clear that this has been a gift to banks, not the middle class in this country.”
Those who believe that this governmental drive is a poor economic decision also believe that it means the theory of scarcity is the more accurate one. They believe that there is no way baby boomers will be able to sell their property for sufficient money to see them through retirement. On the other hand, evidence demonstrates that house prices are once again on the rise, which would throw this theory out of the water. Perhaps the reality is that nobody knows.