We didn’t see this coming.
Oh Boomers. How are you to blame for everything?
Are you just an easy target or have you really been that naughty?
That’s the thing that always struck me as silly about the ‘boomers broke the housing market’ cliché. The housing market did get broken – with chronic undersupply for decades now – but the boomers never set out to break it. Most just wanted to own their own home and forget about it.
But now, again, were realising that the natural evolution of boomer lifestyles is having an unpredicted impact on the housing market.
First-up, baby boomers are not downsizing in anywhere near the numbers we thought they would.
Don’t they realise we need to free up housing stock. How attached can you even be to a house you’ve lived in for 50 years? So selfish.
(That’s sarcasm, obviously.)
But second, it turns out that boomers are creating more households than we thought they would.
Higher divorce rates are driving up household formation in older age groups, and that’s creating an unexpected surge in demand.
That’s the data we’ve got from America, but I’m sure the same story is playing out here:
The current housing market has defied expectations of a downturn in real estate prices caused by this year’s surging mortgage rates. Instead, prices and demand have remained strong, confounding experts and stymying many first-time homebuyers.
The reason? “Blame the boomers,” according to one Wall Street economist.
It may seem paradoxical, acknowledged Barclays senior economist Jonathan Millar in a Thursday research report. After all, many would assume that an aging population would require fewer homes, but that’s actually not the case, he noted.
Baby boomers are actually creating more households, putting pressure on housing demand and keeping prices aloft despite the highest mortgage rates in more than 20 years. Boomers are creating more households partly because they’re separating due to divorce or death, Millar noted.
“A given person is generally more likely to become the head of a household as he or she ages, with the highest likelihood occurring beyond retirement age,” Millar wrote. “Hence, as an increasing share of the population shifts into older age groups, more and more households tend to be formed.”
While boomers will eventually require fewer homes as they get even older, that might not happen for quite some time, he added. The youngest boomers are 59 years old, which means there are millions of boomers still in the workforce who will be retiring over the next several years, adding to more household creation.
So some baby-boomers are getting divorced and creating new households.
But how big is the effect?
It’s substantial:
“Despite notable increases in [housing] demand from the 35-44 cohort, almost all of additional demand is explained by the aging population — with significant increases in households in the 65-74 and 75+ groups,” Millar noted.
You’ve got the same story going on here, which, alongside immigration, is why the housing market has become so incredibly squeezed in recent years.
Don’t expect that to unwind anytime soon.
DB.