Last week, in NewsWire, I responded to a WSJ article that predicted imminent doom for for rural, suburban, and senior housing due to the aging (and passing away) of Boomers. My conclusion (see story below): "This story is one-quarter fact and three-quarters hype. You do not need to put this anywhere near the top of your worry list."
Clearly, demography is destiny when it comes to homes. On Wednesday, January 22nd, I'm going to have a conversation with Josh Steiner, head of Hedgeye's housing sector, to discuss (with a few charts) what impact Boomers will and will not have on the future of America's housing industry. I hope you'll join us!
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CALL INFORMATION Please Join us on Wednesday, January 22, 2020 @ 11:30 AM ET - Add to Outlook Calendar |
WHO WILL BUY ALL THE BOOMER HOMES?
(Republished from NewsWire, 1/13/20)
- By 2037, an estimated 21 million homes in America will be vacated by seniors as they move elsewhere or pass away. Many of these homes are pricey or in retirement hotspots like Florida, setting the stage for an awkward mismatch between what’s available and what Xers or Millennials want to buy. (The Wall Street Journal)
- NH: This story has been making enough waves on social media over the last month that I thought I should weigh in.
- Bottom line: This story is one-quarter fact and three-quarters hype. You do not need to put this anywhere near the top of your worry list.
- Let's start with the fact part. To be sure, the demographic "baby boom" (born 1946-64) does represent a sort of pig-moving-through-the-python compared with the much smaller generation preceding it (the Silent) and the somewhat smaller generation trailing it (Generation X). So, yes, it logically follows that housing that differentially appeals to seniors will face a tougher market in future decades than it would in the counter-factual case in which the baby boom had gone on forever.
- That's it. That's the quantitative argument. Now let me explain why you shouldn't worry about it.
- Most importantly, the trend is a lot milder than you might imagine. In every future year, the population of seniors (counted either as 65+, 75+, 80+, or 85+) is projected to grow from one year to the next. In no future year is it projected to shrink. See the first and second charts below. How can this be? Well, first, the Gen-X "birth dearth" has been partially filled in by the immigrant boom of the 1980s, 90s, and 00s (Gen-Xers are today America's most immigrant generation). So birth numbers don't tell the whole story. A lot of that per-cohort gap between Xers and Boomers has been narrowed over their lifetimes.
- Second, by the time the last baby-boom cohort (born in 1964) reaches its accelerating mortality-and-attrition years (in the late 2040s, when it reaches its mid-80s), late-wave Xers and early-wave Millennials will start to turn age 65. The demographic echo boom will thus begin to add larger birth cohorts to the senior population just as the last large baby-boom cohorts begin to shrink in size.
- Third, despite an alarming recent episode of declining U.S. life expectancy, especially among the non-elderly ("Adults Under Age 65 Driving Declines in U.S. Life Expectancy"), life expectancy at age 65 can be reasonably expected to grow in future years. This growth is built into the population projections. This too tends to give an extra little annual nudge upwards to the projected future senior population.
- So the slowing trend not as big as you might imagine. Also, it will happen a lot later than you might imagine. Take a look again at those charts. In the overall 65+ population, it starts slowing in the early 2030s. In the 75+ population, it starts slowing in the early 2040s. In the 85+ population, it starts slowing in the early 2050s. I don't know about you, but this timetable fails to give me the jitters.
- The WSJ article obfuscates these facts. For example, the authors graph the contrasting numbers of Boomer versus Xer births, while never commenting on how this gap was later narrowed. They ominously compare the growth by decade in total new homes sold with the growth by decade in seniors who for any reason move out of homeownership. See the third chart below. This is an unfair apples-to-oranges comparison. Seniors (like younger adults) have to some extent been switching owned homes for rentals--and some switch back again or move for a time abroad.
- Most oddly of all, the WSJ authors spend a lot of ink examining senior communities (whether "active adult" independent living, assisted living, CCRCs, or institutional care)--as if to imply that these are the first communities to implode when the "Boomer bust" arrives. To the contrary. These will be the last to be impacted by the aging out of Boomers. Why? Because the likelihood of living in senior communities rises steeply with age. Only 42% of the senior population is over age 75 (24% over age 80). But 70% of the senior community residents are over age 75 (53% over age 80). See the fourth chart below. As a result, the next 15 years promise to be a boom era for "senior housing"--as the first wave of the baby boom moves into the 75+ bucket. Today's active-adult meccas still have mostly Silent Generation residents. The Boomer wave is mostly yet to come. Many of the big senior developments in Florida report high and rising demand along with future expansion plans. Here, the story really gets the timing wrong.
- Still, doesn't the prospect of a vast Boomer horde decamping for some sort of senior community pose a near-term threat to the market for the suburban McMansions they are selling? The answer is no. Contrary to stereotype, the vast majority of seniors live on their own and age in place. As of 2016, less than 7% (estimated) live in any type of senior community, and of these roughly half live in institutional care settings ("nursing homes") and half in assisted or independent living senior communities. There is another 4.5% who require care from another adult (usually a family member) either in their own home or in their family member's home. Under age 75, you can cut all these percentages in half (or more). See the fifth chart below.
- What this means is that well over 90% of seniors are not transitioning into any type of senior community nor are they compelled to relocate due to disability until they either die or reach their late-80s. And, if anything, retiring Boomers (post-2008) are moving less overall into senior communities--and especially less into nursing homes--than the Silent Generation. Boomers are delaying downsizing--or just avoiding it altogether. In fact, despite favorable demographics and regional booms, the senior housing market remains glutted on a national level. It's not because they are dying. It's because they don't want to move in to begin with.
- What's more, those who do move into senior communities or into relatives' homes due to disability tend to be poorer and thus do less to impact the homes in the higher price ranges. Increasingly, those seniors who can afford to hire home health assistance and "age in place" are doing so. To be sure, there is a bimodal distribution here. A rapidly growing "luxury" market in senior communities is indeed attracting younger affluent seniors, that is to say, the wealthiest of today's first-wave Boomers. Some of these well-off seniors are also voluntarily "downsizing" away from the suburbs into core urban developments rich with amenities (see "Boomers Splurge on Luxe, Urban Apartment Rentals"). See the sixth chart below. But as I have explained (see "Reports of Suburbia's Death Are Greatly Exaggerated"), the quantitative impact of this much-publicized trend is quite small.
- Since the population of seniors is not expected to decline in any future year, the right question to ask is not whether, over time, Millennials will go out and buy all the vacated Boomer homes, but whether the next generation of moving past age 65 (Xers) will want to move in. In the suburbs, I think the answer is mostly yes. Gen Xers (and even many Millennials) are increasingly moving from cities back out to the suburbs--following the phase of life transition forged by earlier generations. Getting younger generations to buy vacated Boomer homes in depopulating small towns and rural areas may be a tougher proposition.
- Gradual shifts in housing prices can be expected to keep supply and demand in alignment. Indeed, this shift has already started. Over the last 5 years, according to Zillow, urban home prices have pulled slightly ahead of suburban home prices. And over the last 20 years, rural homes prices have experienced a more profound devaluation against both urban and suburban regions. See the last chart below.
- Keep in mind that there is plenty of uncertainty here. By the 2030s, a profound shift in urban land use policy that opens coastal cities up to more housing could work to depress housing prices in the suburbs and maybe cut them drastically in rural areas. On the other hand, a critical mass of new Xer and Millennial communities in middle America could generate a new wave of price pressure in what used to be fly-over country.
- And yet another possibility: Rising rates of inter-generational living get more Xers and Millennial accustomed to working and living where their senior parents are already located. Already today, roughly 20% of seniors live with younger adults, typically children or grandchildren. (Three-quarters of these seniors are heads of household.) So in one out of five instances, the passing of the home to the next generation is already prepared.
- Whatever happens, one thing is certain: It will not happen suddenly. It will be more like the shifting of tectonic plates, observable only after filtering out all the din of faster-paced political and economic cycles. It will not shake you out of bed one morning. Please, cross it off your worry list.
