The Agurban from Boomtown Institute – Generational Housing Bubble

The 78 million baby boomers have driven up housing demand and prices for three decades since beginning to buy homes in 1970 and continuing up the housing ladder. What will happen when boomers begin to sell off their high-priced homes to relatively smaller and less-advantaged generations?

Communities in the United States face an historic tipping point. After decades of stability, we expect the ratio of seniors to working-age residents to grow abruptly, increasing by roughly 30% in each of the next two decades. We also expect that this change will make many more homes available for sale than there are buyers for them. The exit of the baby boomers from homeownership could have effects as significant as their entry, though with different consequences.

The aging of the baby boomers has been foreseen for decades, but was for many years too distant to cause much concern except about its possible consequences for Social Security. Only a few planners have considered what an aging society might mean for transportation, land use, or other planning concerns (Giuliano, 2004; Rosenbloom, 2004).

We argue that the United States experienced a short- term housing market bubble that is nested within a longer-term, generational housing bubble of greater magnitude. The recent housing price boom has been remarkably strong. From 2000 to 2005, the median sales price reported by the National Association of Realtors rose 48.6% nationwide, and in some areas, such as California, the median sales price rose 117.1%. Only in 2007 did prices begin to slip in particular metropolitan areas and nationwide. This price run-up had a two-edged effect that substantially increased the home equity of existing homeowners while at the same time making housing less affordable for would-be home buyers. The result is a sharply increased generation gap, with the baby boomers largely gaining, while members of younger generations face higher affordability hurdles.

There will be winners and losers in the correction to the generational housing bubble. Many young adults will wait for downward price adjustments to make home purchases more affordable. However the baby boomers were born over an 18-year period, and their housing sell-off could stretch over two decades instead of the typical 3 to 7 years for a housing market correction. Few young adults are likely to wait that long for prices to bottom out before purchasing. Members of the baby boom generation themselves who are homeowners could be losers. As home values decline, so will home equity, shrinking retirement savings.

Planners could lessen the negative consequences of the deflating generational housing bubble by anticipating these longterm trends and initiating pre-emptive programs to retain elderly homeowners, attract young home buyers, and closely monitor additions to the housing inventory to forestall overbuilding.

Source: Myers, Dowell and Ryu, SungHo (2007) ‘Aging Baby Boomers and the Generational Housing Bubble: Foresight and Mitigation of an Epic Transition’, Journal of the American Planning Association, 1 – 17.

The Blog Log
Visit my weblog to see where I’ve been and what I have learned along the way.

On the road again…
In addition to my travel blog I’ll list my upcoming engagements in each issue of The Agurban. Come see me when I’m in your neighborhood!

Jack’s Schedule

Upcoming Speaking Engagements:

February 20, 2008 – Jackson, MI, Consumer’s Energy

February 27, 2008 – Mattoon, IL, Lake Land College Energy Innovation Conference

March 5, 2008 – Red Bluff, CA, NORTEC

March 6, 2008 – Weed, CA, Siskiyou Training and Employment Program

Jack Schultz is the CEO of Boomtown Institute and Agracel Inc., an industrial development firm majoring in rural America, author of Boomtown USA, and speaker. Boomtown Institute serves as an economic development mentor to communities across the United States, leading communities to realize their full potential.

Visit the Boomtown Institute website at http://www.boomtowninstitute.com

Keep up with Jack as he tours the country on his blog! http://boomtownusa.blogspot.com/

Read past Agurbans at Agurban Archives http://www.boomtowninstitute.com/Newsletters/archives.html .

To learn more about Agracel visit http://www.agracel.com.

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