patrick.net

Do you know what the average boomer retirement account looks like?

To retire, most boomers will need to sell, and that's assuming they have equity. Many boomers will probably work into their mid-70s, and die in the office if they can't profit from a sale.

Goran_K says

That's assuming their kids want to live in the home, or even stay in the area.

I know a got in mill valley doing that. Pays $350/year property tax (1965 tax rate) and can't afford to move. Thank you Prop 13.

pdg says

I know a got in mill valley doing that. Pays $350/year property tax (1965 tax rate) and can't afford to move. Thank you Prop 13.

Cool, and you SFace have solved the problem.

Goran_K says

That's assuming the homes are paid off free and clear, or have any amount of equity at all. Boomers aren't known as the frugal generation.

No one is going to buy anything with an anchor.

You're right, not all BB homes' are free and clear.

I'd assume that of the % of homes that are free and clear, a large percentage of those are held by boomers.

I'd also assume that of the % of homes that are underwater, only a minority of those are held by boomers.

I'm sure the actual numbers are probably out there somewhere, but those are two safe assumptions.

Goran_K says

t is frustrating that our government wants to increase the debt load of its citizens just to satisfy their banking buddies, but it's not sustainable.

Not just banks, what is at risk in mass default is everyone's "savings". Banks didn't loan out their own money, they loaned out their depositors'.

pdg says

I know a got in mill valley doing that. Pays $350/year property tax (1965 tax rate) and can't afford to move. Thank you Prop 13.

Prop 90 fixes that.

Alameda, El Dorado, Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura

are the counties you can downsize to (without losing the protected Prop 13 valuation) if you live in Marin County.

zesta says

I'm sure the actual numbers are probably out there somewhere, but those are two safe assumptions.

Hmm. There is where we disagree.

The latest census data estimates the boomer population at approx. 72,000,000.

About 26,000,000 homes are owned "free and clear" in the country across all age groups. Your assumptions don't seem like very safe assumptions at all

Also:

The Center for Economic and Policy Research in Washington released a report which estimates that 30 percent of homeowners aged 45 to 54 are “under water” on their mortgage. (About 15 percent of older baby boomers, 55 to 64, fell into that category as well.) Other interesting notes from the report:

Baby Boomers in the 45-to-54 group saw their overall net worth plummet by about 45 percent over the last five years, to a median level of $94,200 from $172,400.
Five years ago, the median baby boomer household, with people aged 45 to 54, had enough net assets to generate about $14,000 in annual interest once the homeowners reached age 65. Now, that figure is just under $8,000.

The more likely scenario is:
- A small to moderate percentage of boomers own their homes free and clear.
- A moderate percentage owe money on their home still.
- 30% or more of them are underwater according to the recent data.

Of the 72M Boomers, how many are married? How many rent, how many own homes, how many live with their children? Tough to correlate 72M boomers and the 26M homes that are free and clear.

Doing a quick google search for "boomers underwater" takes me here:
http://www.aarp.org/content/dam/aarp/research/public_policy_institute/cons_prot/2012/nightmare-on-main-street-AARP-ppi-cons-prot.pdf

http://blog.mortgage101.com/2012/07/30/baby-boomers-facing-foreclosure-at-higher-rate/

There it says 3.5M baby boomers are underwater. If there are 72M boomers than 4% doesn't seem like very many to me.

zesta says

Of the 72M Boomers, how many are married? How many rent, how many own homes, how many live with their children? Tough to correlate 72M boomers and the 26M homes that are free and clear.

Doing a quick google search for "boomers underwater" takes me here:
http://www.aarp.org/content/dam/aarp/research/public_policy_institute/cons_prot/2012/nightmare-on-main-street-AARP-ppi-cons-prot.pdf

There it says 3.5M baby boomers are underwater. If there are 72M boomers than 4% doesn't seem like very many to me.

Did you even read the study you quoted? Your assumption is again wrong, and suspect because you didn't even take time to read the study YOU found, instead just posting haphazardly, and making an assumption to fit your agenda. That's ridiculous.

From page 3 of your study:

As of December 2011, 16 percent of borrowers age 50+ were underwater on their mortgage loans, meaning the amount owed on the mortgage loan is greater than the value of the property.

The figures I found included boomers from 45-50. So 30% seems very realistic compared to your "made up fairy tale" of 4%.

Call it Crazy says

That just plain sucks..... looks like many will be working until they are at least 80 (or die) just to pay their mortgages...

That's what it's looking like. The boomer population has very little retirement savings and many live paycheck to paycheck. Even if they owned a home free and clear, their increasing medical expenses, and day to day expenses, might not be covered by a small fixed income especially with Bernanke putting his foot down on the printing presses.

Goran_K says

Did you even read the study you quoted? Your assumption is again wrong, and suspect because you didn't even take time to read the study YOU found, instead just posting haphazardly, and making an assumption to fit your agenda. That's ridiculous.

From page 3 of your study:

As of December 2011, 16 percent of borrowers age 50+ were underwater on their mortgage loans, meaning the amount owed on the mortgage loan is greater than the value of the property.

The figures I found included boomers from 45-50. So 30% seems very realistic compared to your "made up fairy tale" of 4%

Page 1 of the study states "As of December 2011, approximately 3.5 million loans of people age 50+ were underwater—meaning homeowners owe more than their home is worth, so they have no equity"

You're right, I misread loans for people. My mistake.

Even at 16% underwater, that's still far from a majority, which I what I initially stated.
zesta says

I'd also assume that of the % of homes that are underwater, only a minority of those are held by boomers.

zesta says

Even at 16% underwater, that's still far from a majority

Yes, it is, but when you include the numbers I found from the Center for Economic and Policy Research in Washington which track a larger boomer sample than the study you posted:

The Center for Economic and Policy Research in Washington released a report which estimates that 30 percent of homeowners aged 45 to 54 are “under water” on their mortgage. (About 15 percent of older baby boomers, 55 to 64, fell into that category as well.)

...your "only a minority" and "4%" assumptions start to look dubious.

From age 45 to 64, the data seems to support over 30% of boomers are underwater currently.

Goran_K says

zesta says

Even at 16% underwater, that's still far from a majority

Yes, it is, but when you include the numbers I found from the Center for Economic and Policy Research in Washington which track a large boomer sample:

The Center for Economic and Policy Research in Washington released a report which estimates that 30 percent of homeowners aged 45 to 54 are “under water” on their mortgage. (About 15 percent of older baby boomers, 55 to 64, fell into that category as well.)

...your "only a minority" and "4%" claims start to look dubios.

1. Is 16% a minority or majority? How about 30%?

2. Do you still disagree with my statement: "I'd also assume that of the % of homes that are underwater, only a minority of those are held by boomers."

3. When was that study conducted?

4. And assuming we're still on the topic of "who the boomers will sell too?" How will 3.5M underwater loans spread across 20 years of boomers retiring impact the housing market?

bmwman91 says

Sorry Goran, the bad guys won. (bad guys being the fed/Wall Street/government/RE industry). House prices will remain high in the areas we live. There is hardly anything available to downsize to, especially since the cheaper RE market is being consumed by investors & insiders. The lower end stuff will reappear on the market sometimes, but it has been flipped and probably has an asking price that is not enough less than the BBs current house to be attractive. With so many BBs under water, they will be living there and paying it off forever anyway.

Options for first time house buyers like us are limited to a) take it in the ass and overpay, or b) move far away. Accept it. Life is a little more tolerable once you do. Waiting for a train that never comes really sucks the life out of you. Call me a quitter, but I gave up on a free market.

I understand where you are coming from. With Boomers and less promising prospects for higher paying jobs for new grads things will remain like this for another 10 to 15 years. Sometimes I just think my heavy stock market investment will bring that much needed cash for the over priced CA shack. LOL. Stock market rewards so far looks very promising to me - enough to compensate for an over priced CA property, not that I am saying prices are going up!

Goran_K says

Did you even read the study you quoted? Your assumption is again wrong, and suspect because you didn't even take time to read the study YOU found, instead just posting haphazardly, and making an assumption to fit your agenda. That's ridiculous.
From page 3 of your study:
As of December 2011, 16 percent of borrowers age 50+ were underwater on their mortgage loans, meaning the amount owed on the mortgage loan is greater than the value of the property.
The figures I found included boomers from 45-50. So 30% seems very realistic compared to your "made up fairy tale" of

If I may, part of the discrepancy between your numbers is what sections of the boomer world you are counting. For example, the snippet zesta quoted was:

"approximately 3.5 million loans of people age 50+ were underwater"

Whereas Goran's snippet was:

"16 percent of borrowers age 50+ were underwater"

Now clearly, the universe of people age 50+ is larger than the universe of people age 50+ who also hapen to be borrowers. (some own free & clear, some rent, some are in assisted living, etc.)

Unfortunately, it seems difficult to reconcile becasue the study frequently toggles between raw numbers and percentages. Still its entirely possible that both snippets are true if anyone wants delve in there and try to flesh it out.

zesta says

How about 30%?

I think 30+% is significant.

Also, your 3.5 million figure seems dubious and unrealistic. I think you're missing data. That would mean 4% of boomers have a mortgage (or is it boomers over 50 only), yet only 26,000,000 homes in the country are owned free and clear across ALL age groups. So either the boomer ownership rate is a lot lower than is understood, or your data is not complete. Like I said, I've been punching some pretty big holes in your assumptions, which is why I rarely make them. :)

Take it easy on Roberto, he was up late with the bottle again trying to forget he's a serial home debtor in an area whose water future is grim indeed.

CDon says

If I may, part of the discrepancy between your numbers is what sections of the boomer world you are counting. For example, the snippet zesta quoted was:

"approximately 3.5 million loans of people age 50+ were underwater"

Whereas Goran's snippet was:

"16 percent of borrowers age 50+ were underwater"

Yeah I read the first 8 pages, and while the AARP study seems well conducted and the data is summed up nicely, I think the diction seems unclear in some parts.

I trust the numbers from the Center for Economic and Policy Research in Washington D.C over AARP (I use their data for other studies as well in my own work).

The 3.5 million # was in his 2nd link. It is about 4% of the total baby boomers you cited (72 million). If, of the 72 million, 3/4 are married, then you have 45 million houses. If 33% are paid off, then you have 30 million mortgages. If 3.5 million are underwater, that is 12% of borrowers underwater. Those numbers aren't too far apart.

As boomers die, some of their kids will move in or sell the place and use proceeds to buy elsewhere. Also, people have been dying for a while now. Yes, there is a bigger crop of death door knockers at the moment, but you cannot just look at the number of them and think that they all represent a house that will be sold with none of the proceeds cycling back into the housing market.

YesYNot says

underwater, that is 12% of borrowers underwater. Those numbers aren't too far apart.

That's the thing, those numbers didn't track "all boomers". A sizable amount of boomers are under 50 as well. The Center for Economic and Policy Research in D.C tracked 45 to 54 and found 30% of boomers were under water (a source I trust more than AARP) in that age range, with older Boomers (55-65) underwater at a smaller rate (15%).

Also no assumptions are being made, we're trying to come up with data to support a theory. :)

This is a lot of speculation about what boomers will do when it's completely irrelevant.

The only thing that Real Estate is good for as far as the government is concerned is jobs.

Construction creates jobs, and mortgages create jobs.

From the governments perspective, debt is good for jobs.

Now if the economy ever moves off of the construction as an easy economic stimulus then you will see some movement in pricing.

All those shiney new degrees mean jobs outside of construction. Nobody wants to be a laborer any more.

Let's just call housing units done, we have enough, until the next housing crisis, and move on to something else.

A better way to look at it is that housing is now managed by the same people who sell us food at high prices, or gasoline at whatever price they choose today, or charge you 18% interest to buy your Holiday gifts.

Goran_K says

That's the thing, those numbers didn't track "all boomers". A sizable amount of boomers are under 50 as well. The Center for Economic and Policy Research in D.C tracked 45 to 54 and found 30% of boomers were under water (a source I trust more than AARP) in that age range, with older Boomers (55-65) underwater at a smaller rate (15%).

Also no assumptions are being made, we're trying to come up with data to support a theory. :)

Sure 30% can be significant, but it can also be considered a"superminority" Come on, I can admit I was rash in calculating 4%, you can admit that % of underwater boomers fits in the definition of a minority.

Your Center for Economic and Policy report was released in FEB 2009! A lot has changed in 3+ years, C/S is reporting 6 consecutive months of gains and underwater homeowners are trending downwards. That 3.5m in Dec 2011 is probably less now.

What's your definition of a Boomer? 48+ right? Those 45 year olds still have about 2 decades before they can retire, perhaps more since the lifespan and retirement age keeps going up. A lot (good and bad) can happen in those 20+ years.

zesta says

Sure 30% can be significant, but it can also be considered a"superminority"

I don't know about "super minority" and I'm not trying to shave numbers with an agenda here. All I want is a somewhat accurate estimate based on the data out here.

If 25% to 35% of boomers are underwater, I think the economic impact could be sizable, especially since many of them will want to try and retire instead of work until they die. Who wants them to do that anyway?

My point from the beginning has always been, if they can't get out from being underwater, and they are forced to die at work, that's seem pretty cruel, all for the sake of trying to keep home prices inflated.

Let the old timers downsize, sell at fair prices to the youngsters, so they can go fishing all day.

Goran_K says

If 25% to 35% of boomers are underwater, I think the economic impact could be sizable, especially since many of them will want to try and retire instead of work until they die. Who wants them to do that anyway?

My point from the beginning has always been, if they can't get out from being underwater, and they are forced to die at work, that's seem pretty cruel, all for the sake of trying to keep home prices inflated.

Let the old timers downsize, sell at fair prices to the youngsters, so they can go fishing all day.

Really, really? that was your point all along?

If you were truly that altruistic and selfless and wanted the boomers to "go fishing all day" without regards to your generation what would you do? You'd have no-doc loans at .5% and home buying incentives credits so that housing would inflate to 3x our current prices. THEN, you'd get your wish of old-timers downsizing so they could retire early and go fishing all day.

Spare me the "Save Grandpa" line.. It's more like "Goran_K wants a home in prime OC for $50k, F*ck all boomers" (which I have no problem with by the way, but at least say what you mean)

FINALLY, someone that speaks the truth in here!

zesta says

Spare me the "Save Grandpa" line.. It's more like "Goran_K wants a home in prime OC for $50k, F*ck all boomers" (which I have no problem with by the way, but at least say what you mean)

I'd settle for $500,000. :)

APOCALYPSEFUCK is Shostakovich says

Gay billionaire Chindians will 10x the price of townhouses in Stockton before Christmas and sell to aliens from outer space who shit solid gold. Boomers will all retire as billionaires and spend their golden years shooting at their grandchildren in Death from Above tours in gutted, hellish cities that would make Camden look like Monte Carlo.

Finally a thread I started got "Apocalypse'd". I'm truly honored.

Stockton!

I hope those gold shitting aliens have some powerful ray guns.

Violent crime there is outta control.

Hey Sface, "my mom is a boomer. Her permanant living cost in San Francisco is already cheaper than anywhere in the world. She is not going anywhere, the home will be passed down."

We have a supermajority of Democrats in California, as of the last election.
As soon as the newest members are sworn in next year, they will begin the task of dismantling prop 13. Your moms taxes will go up about ten fold, if not more.
I hope you like living with her, because that's your future. The landed elite will have to start paying their fair share of the property taxes. No more squatting on high value land and paying like its in the deepest darkest ghetto of Oakland.

Quigley says

Hey Sface, "my mom is a boomer. Her permanant living cost in San Francisco is already cheaper than anywhere in the world. She is not going anywhere, the home will be passed down."

We have a supermajority of Democrats in California, as of the last election.
As soon as the newest members are sworn in next year, they will begin the task of dismantling prop 13. Your moms taxes will go up about ten fold, if not more.
I hope you like living with her, because that's your future. The landed elite will have to start paying their fair share of the property taxes. No more squatting on high value land and paying like its in the deepest darkest ghetto of Oakland.

I seriously doubt that prop 13 will be altered for primary residences of households making under 250K. Above that, maybe. I can also see some changes to commerical real estate tax policy. But I would be seriously surprised if any seniors were affected.

Nobody in my immediate family has a mortgage, except for the one who lives in CA (near SF).

Goran_K says

To retire, most boomers will need to sell, and that's assuming they have equit

sell and rent? I doubt anybody can rent for cheaper.

I thought we are talking about when they die...where do the houses go? - I say they go to the kids.

SubOink says

sell and rent?

No, downsize. Boomers don't need 4 bedrooms (or even 3) when the nest is empty.

Not 100% true. My parents will have their 4/4 in San Jose paid off in a few years (could have paid it off a decade ago but were investing for retirement in things that returned better than the interest rate on their loan). They have no intent or desire to sell. They like having the space, not to mention that Prop 13 keeps their property tax somewhere around a 1981 level. Now, my parents are FAR more fiscally conservative than the "typical" boomer, but they are certainly not alone. They are 58 and 59.

David Losh says

The only thing that Real Estate is good for as far as the government is concerned is jobs.

it's also an easy way for the Fed to inject $500B/yr into the money supply without anybody noticing or caring.

SFH construction is at a rate of 600,000 per year, so the Fed is adding $800,000 per housing start.

It's not just construction the Fed wants, the Fed wants dilution, a weaker dollar.

Goran_K says

SubOink says

sell and rent?

No, downsize. Boomers don't need 4 bedrooms (or even 3) when the nest is empty.

So they basically trade with somebody that wants to upsize. What's the problem again?

Goran_K says

Also take into account median household debt is STILL twice as much as it was in 2002-2003, and that's after years of loan mods, refinancing, etc.

There wasn't any principal forgiveness, so of course this is the case. The effective debt payments are down significantly lower though.

Kevin says

The effective debt payments are down significantly lower though.

Not enough to pass this kidney stone. They need to get much smaller.

Goran_K says

Kevin says

The effective debt payments are down significantly lower though.

Not enough to pass this kidney stone. They need to get much smaller.

Given the drop in the rate of foreclosures, I don't believe you.

Debt is only a problem if you can't afford to pay it. If you are being charged 0% interest, there is no reason to ever pay it and it isn't a burden on you anyway (it's just free money).

All of those refinances allowed people who were unable to keep up on payments to suddenly be able to do so. Now they have a bit of extra cash every month that they can use to buy other things that they need, pay down other debts, or save for retirement.

So, to answer the original question, boomers will sell their homes to people currently in their 30s and 40s. People in their 30s and 40s will sell their homes to people in their 20's and 30's. Many of them will do neither -- 30% of home buyers stay in the same home for the rest of their life.

Yes, some people with bad timing are going to still have a bad time. Yes, people who made overly optimistic projections about the value of their properties at retirement are going to have to rethink vacation plans. Yes, we will probably revert to home ownership rates in the 50% range as the norm. But the fundamental model of housing hasn't changed much.

Kevin says

Given the drop in the rate of foreclosures

Foreclosures have dropped, but that's an artificial situation. The average squatting time for homes in New York is nearing 3 years, it's over 1 year in California. Just because the banks are allowing people to squat longer doesn't mean people are suddenly becoming current in their loans.

Default rates have fallen from 5.5% in 2009 to less than 1% (which is the normal default rate). People *are* more current on their mortgage.

The people who couldn't afford the homes that they were living in have been flushed from the system. The people on the edge have refinanced. Affordability is well above historical averages thanks to ridiculously low interest rates.

Betting against this trend is a great way to make poor financial decisions. While I don't believe that there will be any meaningful increase in prices over the next 5-10 years, borrowing money is the cheapest it has ever been or is likely to ever be in our lifetimes. Those who take advantage of this cheap money will do extraordinarily well. Unless you have some amazing abilities that people will pay you lots of money for, or are born rich, leverage is the only real path to financial independence.