Current housing industry headlines are telling us “Baby Boomers Are to Blame for the Lack of Housing Inventory” and “Baby Boomer Home Sales Disappoint.”
Baby Boomers (now ranging in age from 54 to 72) don’t deserve that rap. It was the Baby Boom generation that helped fuel home sales growth earlier in this decade after driving two previous housing booms, first in the ‘80s and then again in the ‘90s. The media’s failure to mention this makes today’s headlines unfair to Baby Boomers.
Despite the importance of Baby Boomer home purchases in past booms, it’s Millennials’ homebuying behavior that obsesses housing experts. Many forecasters are predicting home sales will decline in 2019 (after many years of increases), and some of those analysts rightly conclude some of the downward trend will be due to developers continuing to build higher-cost houses rather than the starter homes that Millennials (ages 36 and younger) are looking for.
In 2018, 76 percent of Baby Boomers said they want to stay in their current home as long as possible…
Millennials are now the dominant drivers of home sales, accounting for 50 percent of first-time purchases and 36 percent of 2018’s overall transactions. There’s potential for far more growth thanks to rising wages and pent-up demand leading to the formation of a record 1.5 million new households this year.
However, high prices are making it increasingly difficult for newly united Millennial couples and families to find a house they can afford:
- Millennial homebuyers paid a median price of $205,000 in 2017, according to a National Association of Realtors® survey.
- In the third quarter of 2018, 73 percent of new homes sold were priced above $250,000 and 32 percent cost $400,000 or more, according to the U.S. Census Bureau.
- In the 2018 Fall Homebuyer Insights Report by Bank of America, 72 percent of Millennials ranked home ownership as a top priority.
But Millennials and their need for affordability aren’t the focus of most new construction. After years of steady growth in home sales, it’s not surprising that many builders are sticking to the higher-priced homes that have been part of a successful formula for nearly a decade.
Who can buy these higher-priced homes? While they have higher incomes, most Baby Boomers are no longer interested in purchasing a home. In 2018, 76 percent of Baby Boomers said they want to stay in their current home as long as possible, according to the Survey of Home and Community Preferences published by AARP.
Many Baby Boomers have solid reasons for aging in place in their current homes:
- Seniors over 60 are more than three times as likely to carry mortgage debt compared to 1980, according to an analysis of Census data by the Center for Retirement Research at Boston College.
- For workers 60 and older, 30 percent plan to retire at age 70 or older, according to a 2017 Harris Poll conducted for CareerBuilder.com.
- In the U.S., 22.9 million Millennials are living with their Baby Boomer parents, according to a 2017 U.S. Census Bureau report.
Although these statistics appear discouraging, they also show that it may be possible to reignite the Baby Boomers’ desire for a new home. The key is acknowledging their desire to age in place and incorporating it into the design of new builds. For example, we rarely see developers promoting home features catering to aging homeowners, including layouts with minimal stairs or a full bathroom on the main level.
Given how many Boomer households also include an adult child or an elderly parent, builders could also have success offering homes with a separate living unit or apartment.
It’s clear the 2019 housing market faces challenges, but many analysts see reasons to be optimistic as Millennials continue to express a clear desire to become homeowners. If builders can transition from their current mindset, and focus on creating a larger supply of more affordable homes while also constructing homes that will tempt Baby Boomers to downsize, our country’s two largest generations may be able to combine forces to drive another housing boom.
As always, this blog is designed to be a space where we exchange ideas. We’d love to hear your feedback on what changes the industry needs to make in 2019 to defy current expectations. We’d also love for you to share approaches you’ve taken to meet the needs of Millennial and Baby Boomer buyers.
Bookmark insights.archmi.com now and check back as we revisit this topic and include your input.