As older generations retire, move into long-term care, or pass away, what will happen to the supply of housing?
Many baby boomers are now in retirement, and the Mortgage Bankers Association (MBA) estimates that this generation will put around 4 million homes up for sale over the next 10 years. In the past, analysts have predicted that this will cause an oversupply of housing, pulling prices down.
However, economist Gary Engelhardt, who worked on the report, says this won’t take the form of a ‘silver tsunami’ but more of a ‘silver glacier’. He predicts that this phenomenon will only bring an extra quarter of a million homes to market each year, not enough to reduce house prices.
Economists at First American Financial Corp. add that millions of mortgaged homeowners are locked into low-rate mortgages and will not want to mortgage new homes at a higher monthly payment, sustaining a sales slowdown as people stay put even in old age. This trend is likely to continue as inflation heads towards double digits, forcing the Federal Reserve to hike interest rates higher still to control it.
There is also dispute over whether older generations even want to sell up. Research from Freddie Mac shows that seniors born after 1931 are staying in their homes longer than any previous generation and choosing to age in place as technology and better health than their predecessors make this possible.
And even if boomers do decide to sell, a super-sized group of millennial buyers will boost competition for homes. According to Bill Smead, chief investment officer at Smead Capital Management, “In the United States a lot of people (aged) 27 to 42 postponed home buying and car buying for about seven years later than most generations. But in the past two years they’ve all entered the party together.” Smead predicts that no matter what the Federal Reserve does to interest rates, it won’t reduce demand for property from the number of millennials looking to buy a home.
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