The end of the ‘generational housing bubble’ could mean dramatic changes for the nation's housing market.

Photo credit: Dean

Baby boomers have exerted their influence on America like no other demographic. The boomers, thanks in no small part to their huge numbers, have typically meant great news for our industry in every stage of their lives.

Even as babies, their moms and dads were undoubtedly placing them in brand-new homes in something called “the suburbs,” which didn’t really exist until the start of the baby boom. Lately, we’ve written stories on the trend toward “aging in place,” meaning many aging baby boomers were bound and determined to stay in their homes even if it meant remodeling kitchens and bathrooms with products so they could use those important rooms safely.

A new study from the University of Southern California, however, highlights a boomer bust possibly coming our way, adding more pressure on the country’s hard-hit real estate market.

“Communities in the United States face an historic tipping point,” say university researchers Dowell Myers and SungHo Ryu. “After decades of stability, we expect the ratio of seniors to working-age residents to grow abruptly … We also expect that this change will make many more homes available for sale than there are buyers for them.”

Basically, boomers “retiring” from home ownership will mean just as much as when they bought their first homes. Boomers could naturally be counted on to buy a home, settle down, then trade up to a bigger house or maybe a second vacation home. Rising earnings largely enjoyed by this prosperous bunch helped drive demand for homes and pushed prices ever upward.

But as the country’s 78 million baby boomers retire, America might find buyers and sellers for homes completely out of sync with what we’ve come to expect as the status quo. The oldest boomers turn 65 in just three years. At this point in their lives, boomers will be home sellers, not buyers. Meanwhile, there aren’t enough youngsters to take up the slack, say the researchers, which would mean the bursting of what they call the “generational housing bubble.”

The pair’s number-crunching shows the ratio of old to working-age people is expected to grow by 67 percent over the next two decades. That means a flood of elderly people selling their homes could add to the already bloated inventory of unsold homes and lead further to a drawn-out buyers’ market. How long could this effect last? The researchers say the youngest of the boomers won’t turn 65 until 2029.

The researchers argue that the housing bubble most of us consider ourselves in right now, created by easy credit and the resulting rapid escalation of home prices - up almost 50 percent nationwide between 2000 and 2005, says the National Association of Realtors - is actually “within a longer-term, generational housing bubble of greater magnitude.”

For the most part, buying and selling homes has been closely related, say the researchers, since those who sell a home then simply buy another. Below age 50, buying is more common than selling and net homeownership rates rise. When people enter their late-50s and early-60s, buying and selling balance out. But the balancing point teeters as sellers hit their mid-60s and then falls off when selling dominates among those in their 70s.

The effects will vary across the nation, the researchers say, but will be felt in all 50 states to some degree or another. For example, in retirement meccas such as Florida and Arizona, the sell-off will likely start later since the elderly in these states don’t become net-sellers until they reach their 70s. But expensive states such as California or colder states such as those in the Midwest and Northeast might mean more of a mismatch between older sellers and younger buyers sooner rather than later.

While the researchers figure the market will adjust to this imbalance, the “question is whether these adjustments will be sufficient to cushion the baby boomer sell-off.”

And while new construction may adjust, the researchers point out that existing homeowners supply five or six times as many homes for sale as do builders of new homes. “Existing homeowners’ decisions to sell are not professionally managed, but are driven by personal, financial, community and age-related life-cycle decisions,” the researchers say. “The many baby boomers facing these same issues in the future could flood the market with excess supply without regard to declining demand.”