Over the last 50 years, the Baby Boomers have been the biggest generational economic force in this nation's history. Their influence spanned all parts of American culture, and its economy, real estate included.
Make peace, not war
In terms of real estate, the senior market has flourished with the purchases of properties in Florida and other fair weather states. Luxury apartment communities for those that have retired, or Retirement Communities, lay scattered among prime real estate areas. At least one has their own zip code and air field.
But what will happen to all these properties once the mortality rate of this famed generation reaches its peak? And what's more, what will the ripple effect be throughout the country?
Assuming most seniors have a will, the ones that own property will most likely leave it to their next of kin. What they will do with it with the property will be limited to a few options: sell it, rent it out, move in, or just hold it.
Most likely, the decisions would be to sell it or rent it out. Even if wanting to keep it for a vacation home, short term rentals on Airbnb etc. would be used as another source of cash flow. Especially for a family.
A family with kids older than college age might decide to rent it out, but eventually it would be sold. This is because eventually there is a want or need that involves a larger lump sum, whether it be for the grandkids' college fund or just to move into a nicer house. Many seniors sell their properties beforehand and then go live in a retirement community, so the generationally-impacted sell trend may already be starting.
A reflection of wealth?
Here is where we go back to the fundamentals.
This steady sell-off would mean a baseline increase on the properties made available for sale. Assuming they don't all die at once, when there is a consistent increased supply baseline over time, the "new" normal price is lower than before by a modest percentage.
This price drop is furthermore supported by the fact that the inherited properties were not paid for, and the next of kin may be satisfied for a lesser than market price to get the property off their hands. Also relevant would be the increased amount of available rentals offering a competitive rental price, in the rent vs. buy decision. This would come from people renting out these inherited homes, or as more apartments become available in general.
Keeping all of these dynamics in mind, this Baby boomer price drop should be less than 10% of property values. The nature of this passing of the torch not being all at once is the main buffer against a dramatic and systemic impact. It would take place over the cource of a decade or two. Enough time to spread out the "damage".
And while states with a higher percentage of seniors will get hit harder, this dip may also be mitigated by son-and-daughter investors, as they reinvest these sums back into the real estate market.
Not so dramatic, but it may pile on top of other bear trends like the supply / demand price discrepancy and the fed rates being expected to rise significantly in the medium term.
Another interesting impact stems from the differing tastes in real estate investment between the generations. As Gen X makes more money, they gravitate towards more urban homes, while Millennials opt for the suburbs. We could see more of a concentration on urban properties as a result of the passing Baby Boomers.
All these ripple effects from the connections between people can be quite extensive. Keep your connections close this holiday season. It's A Wonderful Life, after all.