- Real Estate
The Baby Boomer Housing Market
The Baby Boomer Effect
Some say that our economy started to go down hill when the housing bubble broke. That isn't so far fetched although most people cannot explain why it broke or what the long term effects are.
Back in the 1970's a new Bi-level home was selling on average between $20,000.00 and $25,000.00. Within a few years the same home that was built for $20,000.00 was selling for close to $40,000.00. By the 1980's That same home was selling for $60,000.00. Through the 1990's the homes were being built at a rate of a wild fire going through a forest. Farmland was being taken to build developments, at such a fast pace that in many areas of our country laws were passed to preserve farmland. The cost of homes continued to climb to $100,000.00 all the way up to $300,000.00 for a home not much different that what was being built in the 1980's. Why such a climb in the cost to build a home? The answer is demand! The demand was because of the Baby Boomers. Since the 1970's the bulk of the Baby Boomers were starting to buy homes. The demand was so great that developers almost couldn't build them fast enough.
That demand for housing caught the eye of investors. Many people invested in the housing market and made a lot of money doing so. Then over the years the market slowed down because the need for more housing was not as great. People weren't seeing the same growth in their investments so they stopped investing in that market. As the market continued to drop the value of the homes leveled off and so the seller market came to a halt. Mortgage companies started to give incentives of low money down or no money down with lower interest rates to get people to buy homes. As a result mortgages were given to some bad risk buyers and as the cost of homes dropped below the mortgage balance, people wanted out of the mortgage so they tried to sell the home. When the home was not selling for what the mortgage owed was, sellers were forced to lower the price of the home and take a loss. If they could not afford to take that loss they simply stopped paying the mortgage and let the mortgage company take the brunt of the loss. As a result the bubble broke on the housing market and mortgage companies failed. Now the taxpayers are paying for all the loss because of government bailouts.
The recovery of the market will not be anytime soon. Housing costs are going to drop even further over the next 25 to 30 years. Think about it; it was because of the baby boomers that caused the rise in the housing market due to demand for the housing. The same is going to happen in reverse. As the baby boomers retire at a rate of 10,000 per day for the next 15 years, and want to sell their home to down size or as they die off, the demand for housing will drop drastically. The population of the United States will drop off in large amounts as the baby boomers die. What is going to happen to all of the homes that the baby boomers now live in? Some will be passed down to their kids or grandchildren, but not all of their kids will need another home and the grandchildren might not be old enough to move out on their own yet or they might already have a home too. The simple fact is, it will be a buyer's market for the next quarter century at least. The buyer will have so many homes to choose from that the cost will be driven down in order to make the sale. Until such time that our population increases again, many of the homes will be destroyed to make room for other things or they will sit abandoned and rot.
The value of homes already dropped but they will drop much more over the next several years. Many of the homes will turn into rentals since they will not sell easy. The rental properties will be abundant therefore bringing down the cost of rent. It will not only be a buyer's market for homes, it will also be a renter's market for low rent. Landlords will be forced to lower rents or fear having their home or apartment empty. If you bought real estate for an investment, now is the time to sell even if you take a loss because the loss will become greater the longer that you hold it, unless you have 30 plus years to hold on to it before seeing a profit.
I am thinking that this is a reason why nobody is doing anything about illegal immigration. They are allowing these people to come here illegally to fast track them to citizenship in order to replace the population loss that will take place over the next 25 to 30 years. It's just a thought.