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The great senior sell-off: Our next housing crisis?

Creative Commons/Ed Kohler
Around 2020, seniors will be trying to offload 200,000 more houses than there will be families coming into the market to buy them.

For a couple of years now, I’ve been bugging my older son who lives in Chicago to buy a house already. After all, mortgage rates are at rock bottom (about 3 percent for a 30-year fixed), and house prices haven’t completely rebounded from depths they reached a few years ago.

But there may be a good reason for him to bide his time: something called “the great senior sell-off.”

The theory comes from Arthur C. Nelson, director of the Metropolitan Research Program at the University of Utah, whose ideas were written up in a recent Atlantic Cities story, and it goes like this:

Baby boomers, the generation born between 1946 and 1964, some 78 million strong, have by their numbers reshaped practically everything in American life. Demographers call them “the pig in the python” because they create a huge bulge as they pass through life’s phases. When they were children, there was a classroom shortage; to get into college, they had to compete with each other like pit bulls.

In their family forming, big-spending years, they bid up the cost of housing to unprecedented levels. (Of course, loose lending practices that allowed almost anyone who could breathe to get a mortgage also ramped up prices.) Nelson estimates that boomers drove 77 percent of new housing construction in the United Stater from 1990 to 2010, mostly single-family homes on large suburban lots.

The oldest boomers are now 67. And, even though many surveys show that seniors say they want to age in place, Nelson predicts that as they travel through the old age portion of the python, they will want to sell their three- and four-bedroom homesteads and move to a condo. Or, when they get older, to assisted living facilities. Ergo, the great senior sell-off.

The big question is: Will there be enough buyers? Or, will there be enough buyers who can pay what the departing seniors will be asking? The generations coming along after them are smaller in number; and given the lousy economy, it’s unclear whether they will be earning enough to pay the freight.

Nelson predicts that all of this will hit the fan around 2020. At that point, he says, seniors will be trying to offload 200,000 more houses than there will be families coming into the market to buy them. A lot of people won’t be aging in place but stuck in place. And, presumably, prices would drop, enabling younger folks with less change in their pockets to get into a house.

How might this play out in the Twin Cities?

Tom Melchior, director of market research for CliftonLarsonAllen, a business accounting and consulting firm, who has a specialty in senior housing, believes that prices will depend to a great extent on location.

“Most of the action now is in Minneapolis and St. Paul’s downtowns and Uptown,” he says. “Also in the inner ring suburbs.”

That’s where people seem to want to be these days, he says, and he doesn’t expect prices in those areas to fall precipitously. But people out in Chanhassen or other far-flung suburbs could find selling difficult.

Anyway, I’m letting you know now. You have seven years to plan.

Comments (16)

  1. Submitted by mark wallek on 03/07/2013 - 09:23 am.

    Just dandy

    The full on, spun up capitalization of just about everything (Thanksgiving remains intact due to an inability to spin up turkey and family as salewable objects) has done nothing at all to improve the quality of life. I guess having a bunch of stuff, and having more stuff than one really needs is what it’s about now. Having a home is just nowhere now. Having multiple investment properties is. Come northside and see the LLC’s sucking the life out of the neighborhood.

    • Submitted by Nick Benton on 03/07/2013 - 09:51 am.

      Not-capitalization in homes

      Government created money, government manipulated interest rates, and government backed loans are the exact opposite of capitalization. That being said, emphasis on materialism definitely has not helped.

      • Submitted by Frank Phelan on 03/08/2013 - 12:26 am.

        And That’s Not All, Folks

        Government created a system where the fox was in charge of the hen house, writing and re-selling mortgages and fraudulent security to unsuspecting investors. When it was all said and done, Government put no one in jail.

  2. Submitted by Pat Berg on 03/07/2013 - 09:41 am.

    Waiting 7 years “just in case”?

    I certainly hope potential buyers like your son and others aren’t going to sit around delaying a home purchase by seven years just in case “the great senior selloff” will yield bargain basement prices at that time. Even though that’s seven years in the future, that strikes me as pretty short-sighted thinking, and I would hope more substantial factors are going into anyone’s potential decision of whether or when to buy.

  3. Submitted by Nick Magrino on 03/07/2013 - 09:45 am.

    Design Life

    I seriously wonder about the design life of many of these suburban tract houses–don’t say homes…you can’t buy a feeling. Not necessarily in the St. Louis Parks or even the Minnetonkas of the world, but in the Chaskas and the Elk Rivers, the belt of beige vinyl siding out in the third-ring and beyond. Taking out thirty year mortgages on what will then be decades-old buildings built with balloon construction using toothpicks and imported drywall doesn’t seem like a great investment. How long are these going to really last?

    • Submitted by Todd Hintz on 03/07/2013 - 12:01 pm.

      Construction Quality

      Well, every era has its poor and good quality construction. My stucco house (St. Louis Park) would have been considered average quality when it was built in 1916 and yet it outperforms the new crap built in Woodbury in 2000. There were lesser buildings built in 1916 too, but they either didn’t stand the test of time and were torn down or they’ve been upgraded enough that they can compete in today’s market.

      Personally, if someone wants to struggle to get from their house in Chanhassen to their job in Coon Rapids then that’s their choice. It’s not my cup o’ tea though. I much prefer a shorter commute and easier access to downtown’s amenities and I’m betting that in the future others will agree with me, which will drive up housing prices in my neighborhood. It won’t hurt either in a few years when the light rail goes in only a couple of blocks away.

      • Submitted by Patrick Tice on 03/07/2013 - 05:50 pm.

        What is it with you guys who hate Woodbury?

        Woodbury has good government that delivers good services and those include good inspection and regulation of buildings and construction. I’ll put my home up against yours any day – the engineered timbers that are solid and straight, the pilasters that make the foundation sturdy, the excellent insulation and the air exchange with heat recovery, and the location – safe, with excellent walkability, well-maintained trails, underground electricity and cable, and the easy commute – not all of us work in downtown Minneapolis. Such insular thinking – that everyone who lives in third ring suburbs must necessarily commute to a lunchbucket job in the inner city – get real. Most of my neighbors have graduate degrees and a 10-20 minute commute to jobs that are NOT in the inner city.

        • Submitted by Todd Hintz on 03/07/2013 - 09:44 pm.

          Woodbury

          Correct me if I’m wrong, but wasn’t it Woodbury that had the issue with stucco houses that were made too tight and had major mold problems? And wasn’t their city council in the paper on a weekly basis a couple of years ago because they were so dysfunctional? I must have gotten them confused with a different city.

        • Submitted by Todd Hintz on 03/07/2013 - 09:50 pm.

          Woody

          Seriously though, Patrick. It’s not like people HATE Woodbury, per se–heck, I drive through it all the time. If that’s your cup of tea, then more power to you. Some of us just prefer a richer and more nuanced approach when it comes to our cities.

  4. Submitted by David Koski on 03/07/2013 - 10:02 am.

    Location! Location? Location.

    This article hardly delves into the demographics and development of dwelling into the near future. What really happened is that cheap farm land was turned into snout houses with a bunch of lily white flighters, fueled by blame it on the blacks, crime fear. Those are the crummy, worthless properties that are far too large, to far away and valued far above market realities. Sure every kid has their own bedroom, but how long do your kids live with you anyway? There is a glut of housing in the outer burbs, us city folk will be just fine. Call it the Manhattanization of Minneapolis.

  5. Submitted by Bob Manske on 03/07/2013 - 11:16 am.

    Agree with Melchior

    As a leading edge boomer (66), I have often benefited (got into the housing market early) and struggled (competition for employment) based on my position in the python. As a trained demographer, I have tried to look ahead to the upcoming horizon events for the boomers, especially housing. As a resident of a 4 bedroom home in an inner ring suburb, I have seen several changes that provide optimism about future sales: arrival of immigrant families that covet large homes to serve large extended ‘families’; redevelopment of these larger homes as group homes; and the more recent return of families to within the beltway. Through this, I have tended to treat the costs of home ownership not as an investment but as a ‘rental’ cost, relying on other investments to provide the income and security needed in retirement. Using this philosophy, I have continued to make improvements and maintenance to my home in light of how I and my family will enjoy it rather than concern about its future sale. I am currently planning a major expenditure to upgrade the main floor bathroom to allow handicap accessibility if needed in our future. But one of the key considerations is that the cost is kept at a level that can easily be amortized within current retirement income and within 5 years. Our hope is that we will be able to age in place but if our situation or attitude changes, we feel confident we will be able to exit the market without damage to our wealth.

    • Submitted by David Greene on 03/07/2013 - 05:07 pm.

      Housing as Quality of Life

      I am nowhere near retirement age yet we take very much the same approach with our house. My father (just ahead of the boomer curve) treats housing as an investment. My wife and I treat it as a quality of life issue. I didn’t mind paying more for a house we really like in a great neighborhood. I wasn’t overly anxious about the housing collapse and going underwater because I don’t count on housing equity for retirement. Sure, I would love it if I got something out the back end but I’m not betting on it. We can’t be any worse off financially that if we rented, assuming our debt level is reasonable. Your amortization criteria seem just about right to me. We think of housing costs as rent with perhaps a bit of upside in the distant future.

      We’re doing some major upgrades and a few potential contractors asked the usual “how long are you going to be here?” as if the quality we would put in depended on how much we would get out of it. We’re not interested in making superficial upgrades to hide problems to get a better sale. We’re interested in enjoying the house (and the upgrades) and improving our neighborhood. We went with the contractor who “got it,” who is interested in quality work that will bring real value not just to our house but to the whole block.

  6. Submitted by James Hamilton on 03/07/2013 - 01:48 pm.

    This concept

    should not come as a surprise to anyone. Oddly enough, those of us in smaller homes may feel the effect more strongly, as those in the market see how much more they can get for their dollars when compared to their parents and grandparents.

  7. Submitted by jody rooney on 03/07/2013 - 03:24 pm.

    Well said Mr. Manske

    If you assume that the Twin Cities won’t grow then there might be an issue but if as Mr. Manske says it does continue to grow then people will need homes.

    I always think the sprawl people are funny (although not as funny as Mr. Benton who understands so little about the monetary underscores the need for better education in high school). Where exactly did they expect people to live?

    It won’t take buyers too long as Mr. Magrind said to discover that older homes with good bones have a lot more going for them than newer homes. My home is 120 years old and there’s no reason it shouldn’t be here for another 120 years.

    • Submitted by David Greene on 03/07/2013 - 05:12 pm.

      “Sprawl People”

      I assume by “sprawl people” you mean those of us working to contain it.

      We expect *infill* development, not no development. There is a big difference between expanding the size of the metro area to unsustainable levels and taking existing land area and redeveloping it for better uses. Take a walk around Uptown, for instance. There’s a tremendous amount of surface parking. That is wasted land that could be used for housing and businesses. Fortunately, some of that transformation is happening right now but there’s a lot more to be done. We all know the story of downtown Minneapolis and ’60’s urban renewel. We’re not even close to recovered from that.

      There is absolutely no reason our additional future population can’t live within the beltway. In fact they *must* in order for our region to survive. We’re already seeing water shortages and fuel cost spikes. This is just the beginning. We’ve got to reign in our waste.

  8. Submitted by Ray Schoch on 03/07/2013 - 04:55 pm.

    War babies first!

    Born on an August morning when my Dad was flying a combat mission over Iwo Jima in 1944, Over several decades, I’ve rented apartments and houses, lived in a condo, and purchased an assortment of single-family detached dwellings, all dependent upon my then-current fiscal and occupational position in life. The first of 8 children, I grew up in a succession of large houses, As an adult, I find I prefer small to large. Small cars, small family, small houses. Having tried most of the housing options commonly available in this society, I prefer single-family detached, but I’m not wedded to it, and my second choice would probably be renting another house.

    With that as a preface, I tend toward Bob Manske’s view. Housing is — or, in my view, ought to be — nothing more or less than a living expense. When I moved here, having no idea about the local housing stock or market, I did a lot of online investigation and driving through neighborhoods, not to mention putting plenty of miles on the vehicle of the realtor whose services I was using, and touring a lot of mid-to-low-end houses.

    Mr. Manske may be right about at least a portion of the larger homes, since many immigrant families are, in fact, larger than average. The issue of quality and/or strength of building materials will be a genuine one for many years to come. The house I ended up buying in Minneapolis was built in 1955, and seems likely to stand for at least another 50 years if it continues to be maintained by succeeding owners. Modern-era tract homes are not noted for their quality over the long term. But it’s worthwhile to point out that the couple dozen gems in the Milwaukee Avenue Historic District were “tract homes” for blue-collar workers when they were built in the late 19th century. Their design is quite dated, but as architects and redevelopers like to say, those houses have “good bones,” and they’re far out of my price range now that they’ve been rehabbed. I expect internal configurations have been substantially altered in the process of rehabbing for many, if not most of those residences — many of which are large enough to be part of the problem Marlys is writing about as their current owners downsize.

    Never having adopted the Wall Street mentality, I’ve never purchased a home as “an investment,” more specifically with the intent of selling it for a profit. It’s just as well, since the market is cyclical and unreliable, and I’ve demonstrated no talent whatsoever for putting my house on the market at the right time. Of the places I’ve “owned,” I’ve sold two for more than I paid for them, and sold two for less than I paid for them. What some would regard as a loss, I took as part of the expense of living there, and while I lived there, house payments, property taxes and maintenance expenses added up to a total that was still less than what I’d have paid for equivalent rental space in the same housing market. For me, that’s been the real bottom line: can I rent suitable space (and let someone else pay for maintenance and property taxes out-of-pocket) for the same or less money? The answer, not surprisingly, has uniformly been “No.”

    My current house was a bargain, since I bought it near the bottom of the real estate depression, and while it’s somewhat larger than I really need, it only qualifies as a McMansion in a 3rd-world country. When I return to the universe, I don’t expect my son — or the mortgage-holder, depending upon how much longer I last — to have significant difficulty in finding a buyer for the place, and at that point, I won’t care what the sale price might be.

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