In the wake of the boomers

More from Mark Kennedy | @MarkKennedyTeamIn the wake of the baby boomers

According to the U.S. Census Bureau, a baby boomer is a person who was born after World War II and branches from the years 1946 to 1964. As a generation they are the wealthiest, most active, and physically fit up to their time, as well as the most optimistic about the future. They are also a generation that received peak income levels  and  as a result, can afford  the luxuries of dining in high end restaurants, buying designer clothes, participating in retirement programs, international travel and of course,  real estate.

Peter Francese, founder of American Demographics magazine says,  “Considering that boomers are healthier than their predecessors, and are more likely to work in an office setting, many of them may work five or 10 years beyond the traditional retirement age of 65″. This changes the game as far as the face of the economy and the real estate market are concerned. According to the AARP, by the year 2015, those aged 50 and older will represent 45 percent of the U.S. population. Boomers are living longer and staving off retirement for greater lengths of time. The Bureau of Labor Statistics states that  “…in 2009, spending by the 116 million U.S. consumers age 50 and older was $2.9 trillion, up 45 percent in the past 10 years”, so  they continue to be contributing to the economy.  What role have they played in U.S. housing market?

Boomers thrive then dive

In the 70’s, the baby boomers were graduating college and heading out into the work force. During the end of that decade, housing prices rose dramatically, between 19 and 32 percent. More boomers were buying houses and experiencing increased spending power. Young adults were moving into cities creating gentrification and constructing starter homes in the adjoining suburbs. The population of people 25 years and above increased by 22.9 million. A sudden surge in demand drove several market trends and escalated housing prices.

The 1980s has traditionally been viewed as a time of strong economic growth and innovation. It’s also a time when boomers turned to credit cards with high lending rates. The sheer numbers of the baby boomer generation and their spending influenced the marketplace.

The 80s also saw the setup of the housing market for a future crisis, with home foreclosure rates beginning to rise and subsequently tripling by the close of the decade.

The boomers were riding on the crest of a wave.  The 1980s boomers tapped their ballooning real estate values through home equity lines of credit.  They used those credit lines to pay for new cars, financing European vacations and remodeling their kitchens. By the end of 1989, boomers were carrying $95 billion in lines of credit drawn on their home equity.

Boomers balance out

The age of technology was upon the boomers and financial recovery was slow. Not until well into the 90s did interest rates start to fall and the economy started to improve. The average mortgage rate by the late 90s fell to 8.2 percent. The housing boom began – again – and consumer confidence raised, putting buyers into homes.

By the time the clock struck midnight in the year 2000, the Armageddon that threatened the internet world didn’t happen and life developed a sense of stability, initially.  In this decade, the real estate market in the U.S. was impacted by 9/11, a subprime mortgage crisis and a subsequent Wall Street Crisis in 2008.

Boomers expected in adulthood they’d get to enjoy the fruits of the American dream, and in general, the earlier a boomer was born, the better his chances were of succeeding.

By the year 2010, John McIlwain, author of a housing report on the boomer generation for the Urban Land Institute says, “About 10,000 boomers reach medicare age every day, and the over 65 crowd is predicted to grow 36 percent to 54.8 million.

By 2030, the total boomer population, age 66 to 84, is expected to be 72 million.  The 2010 census for this age group is 35 million.  The impact the baby boomer generation had on real estate in the last 35 years is on a scale incomparable to preceding generations.

The next generations

As we look to the future and evaluate how Gen X (1965-1982) and New Boomer (1983 to 2001) will impact the real estate market, the numbers speak for themselves. By 2030 these two generations (ages of 29 to 65) will be 146 million strong. In 2010, the census for this age group is 142 million.  At first glance this may seems like a nominal increase in this population segment and the impact on real estate needs could be interpreted as a healthy increase in demand. However, when we factor in the 2030 boomer population, there are an additional 41 million people, representing a 32% increase, with housing needs. Gen X and New Boomers will continue to put their own mark on real estate in the years to come as did their predecessors. As each generation ages, their real estate needs will shift as well. What’s to be seen is how the ebb and flow of supply and demand will play out in the next 17 years as we witness three of the largest generations in history upgrade, downsize and purchase secondary homes.

More from Mark Kennedy | @MarkKennedyTeam

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