At a time when the youngest and oldest households are pessimistic that the housing market will rebound over the next two years, these age groups are forecast to be key to the recovery of the "mired" housing market, according to Harvard University's recent report on the state of the nation's housing. An Internet survey of investors we conducted in June found that just over a quarter of investors overall expressed optimism about the housing market’s recovery. Nearly a third, though, were neutral on the question, while just over 44 percent “disagreed” or “strongly disagreed” that it would rebound.
But so-called “echo-boomers”-those born after 1986-and baby boomers are expected to shape housing demand. The baby boom generation, born from 1946 to 1965, will increase the number of households over age 65 by an estimated 8.7 million over 2010-2020, the report finds. They will most likely “age in place,” while an estimated 3.8 million people in this age range are expected to downsize to smaller units and gravitate toward "preferred retirement destinations.”
“The baby boomers have dominated housing market trends at each stage of their lives-first as children in the households that were part of the great wave of suburbanization, then as young adults entering the housing market for the first time, and most recently as middle-aged households trading up to bigger and better homes and helping to fuel the homeownership boom of the 1990s and 2000s,” the study states. “As they approach retirement age, the baby boomers will once again heavily influence overall housing demand...Over the next decade, it is much more certain that the baby boomers will boost the number of senior households to unprecedented heights.”
Echo-boomers, on the other hand, are entering the housing market at a time of high unemployment, so the impact of this age group on household growth is less certain, the report said. They are reluctant to establish their own households in favor of remaining in their parents’ homes.
Lingering consequences of the recession and 2008 financial crisis - record low construction levels, depressed existing and new home sales levels, high foreclosures, and homeowners who owe more on their home than it is worth - are "thwarting a broader recovery," according to the study.
"The state of the nation's housing is sobering," Eric S. Belsky, the managing director of the Joint Center for Housing Studies, which wrote the report, said in a statement. "Total housing construction over the previous decade now barely exceeds the lowest level of any ten-year period in records dating back to 1974."
Home prices have dropped drastically during the last three years throughout the U.S, but higher required down payments, income requirements and credit score minimums are obstacles to many aspiring homeowners. Added to these concerns are underwater mortgages that have saddled homeowners with homes on which they owe more than they are worth. This has had a significant impact on mobility.
Not surprisingly, the majority of investors we surveyed (69.3 percent) said they were acquainted with someone who over the past couple of years have had trouble selling their home.
In another survey we conducted of Millionaire investors with a net worth between $1million and $4.9 million (not including primary residence), just over half (51 percent) said they key lesson they learned from the economic downturn was that their primary residence is not a stable financial asset. Of these, 59 percent of those older than 65were most likely to have this attitude.