patrick.net

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.

Kevin says

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.

I think you're right, leverage is all about risk, and those risk paying off. Housing however has never historically been a very exciting (or very profitable) investment. In fact more money was lost during the 2000s bubble than injected into the economy because of it, which is logical; there are always more losers than winners when it comes to gambling. That's why well run casinos are great.

Yup says

Wrong.

This is great data, and so far it looks to be in line with everything I've read.

Bellingham Bill says

the Fed wants dilution, a weaker dollar.

The Fed wanted inflation. The Fed desperately tried to devalue the dollar, and is still trying, but it didn't happen.

All they did was create more debt for more people, and more consumers are going along borrowing more.

So, the massive infusion of cash only went into bank reserves, and corporate profits. Speculation in commodities added greater, and greater wealth. The dollars found safe havens outside of the United States to be sheltered from taxes.

Now the Fed is buying Mortgage Backed Securities which is giving incentive to banks to lend more.

The end result is that as long as the consumer plays the game well they can make money by paying off the debts they accumulate.

The consumer has a chance to get off the debt cycle if they look at the numbers. If they make wise financial choices to borrow modestly, and pay off the debt, there is a chance to leverage.

Over 70% of boomers expect to work PAST 65 and even past retirement:

http://www.cbsnews.com/8301-500202_162-57323056/most-baby-boomers-expect-to-work-after-65-poll/

Wong Ulrich said, "Since the poll was taken in March and then the next poll was in early October before the gains of October, the Dow (Jones Industrial Average) was down 10 percent. So it's an additional big hit -- 62 percent of those surveyed said they took a big hit with one or many of their retirement vehicles. For example, in terms of IRA and their work IRAs, that they have lost on average 42 percent, 41 percent in personal investments and real estate --we don't necessarily think about real estate as an investment -- but that's something that we have all depended on as a foundation; 29 percent of respondents ... have lost value and equity there."

Call it Crazy says

housing recovery

We are in a housing recovery, it's just different from what people might think.

Prices will drop in many areas that are right now living in a dream. There are parts of Washington State where property prices sky rocketed and now that those areas have dropped 30% from the peak it's like everything will be OK.

It's not OK.

Prices went from $60K to $200K and now dropped to $120K, but that's still double the price. Nothing warrants the price increases, but thousands of home owners have loans in excess of those amounts.

In city properties may have dropped 30%, but they didn't double in price during the peak. So, some in city properties may be a pretty safe bet.

Some reality, some time, will creep in, but I think most people at this point will simply bite the bullet, and pay the debt.

Buyers have choices. They can buy below the means they have, pay off the mortgage they get, rent that out, and move up, or sell, and move up.

This is the way it was before every one got to be so smart about "leveraging" property.

Real Estate is a meat head business. It's not rocket sceince. Your goal is to beat the bank out of as much interest as possible. It's only an asset if you have equity, and the only way to create equity is to pay down the debt.

David Losh says

Real Estate is a meat head business. It's not rocket sceince. Your goal is to beat the bank out of as much interest as possible. It's only an asset if you have equity, and the only way to create equity is to pay down the debt.

Exactly.

David Losh says

It's not rocket sceince. Your goal is to beat the bank out of as much interest as possible. It's only an asset if you have equity, and the only way to create equity is to pay down the debt

I completely agree. That's why I have always been a proponent of pre-paying the principal. This approach is the antithesis of taking out helocs or equity line of credits or only paying the monthly minimum and "investing the difference" in the stockmarket. The faster that someone can eliminate the mortgage payments the faster they can achieve financial freedom that will never be experienced by renters or by those who take full 30 years to pay off the debt.

SFace says

I will never want to pay off a loan that is 2.5% net of tax

and the bank wants you to pay them that 2.5% interest for as long as they can convince you to do that.

The fact is that we past the point of appreciation so your only equity will come from principal reduction.

Amortizing the loan quicker is the the best way, if maybe not the only way to create equity.

I read a lot of comments about how people are using the banks money for a "leverage" position, but that's a crock. You only get leverage if you are getting a return.

The people getting a return on your 2.5% interest payment is the bank.

SFace says

Would you lend me 1M very long term at 2.5%

I'm not a bank, but sure, why not? There is no risk to the bank in today's market place, because the Notes have been secured, sold, insured, and are now being bought by the Federal government. So, sure, why not?

SFace says

My appraisal on a recent refi came back 20% higher than Feb2012

Of course you can always get more from the bank on your promise to pay. Banks like payers, and your appraisal means nothing except for a refinance. Now, that money you can invest elsewhere, and that would be leveraged, but the family home remains in jeopardy, as a liability.

Keeping the family home as a liability makes no sense what so ever. It's not smart, it would be much better to rent.

The only way the family home becomes an asset is by equity.

SFace says

Bank needs to make money too

The bank is the enemy.

You take the money, make the return, pay off the bank, and move onto the next deal.

Holding long term debt ten years ago might have worked, but today it's a huge gamble.

Any savvy accountants here?

If the Debt Forgiveness Act isn't extended, I know short sellers will get hefty 1099s from the IRS for the windfall they got by short selling. What about those who get foreclosed on?

This could really complicate things for those who pig out on credit, and then try to "strategically default".

Goran_K says

Who will the boomers sell their homes to?

They won't. They'll leave them to their Millennial kids who will either move in or sell it to other Millennials are a much, much lower price. I guess that's the solution to the problem. Get rid of the generation that insists its houses are worth 10,000 times what they paid for it.

If you intend to keep the home aka capital in the family, then your holding period is technically infinite. Of course, you can't control what your kids will do what you die, but nonetheless, it's sort of true. The implication is that via infinite holding period, the buy vs rent is clearly in favor of buying since it normally takes 5-7 years to break even vs comparable rental. Obviously this point of view does not apply to DINKs or to those who never plan to have kids.

2.5% interest is a myth. Where did you get that number from? Did anyone get that rate? From whom? I ran to the bank to be told; eeeeee, the thing is criteria bla bla bla. Endless stories. Give me a break!

Yeah I don't think most people will be getting 2.5% for purchase loans. MAYBE refinancing.

Could you be more specific pls?

zesta says

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.

Nope. Not much has changed:
http://www.housingwire.com/news/monday-morning-cup-coffee-homeowners-over-50-fall-foreclosures

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.

Remind me again why your not on my ignore list. Nothing you say makes much sense, but it's occasionally funny.

My father-in-law keeps saying he's going to Will his house to us. A house we neither want or need. We can barely afford the Mortgage and taxes on the house we have, what do we need another for? Even a house owned free and clear still have taxes and other expenses associated with it, if it ever does end up in our possession, we will just sell it.

Dan8267 says

They won't. They'll leave them to their Millennial kids who will either move in or sell it to other Millennials are a much, much lower price. I guess that's the solution to the problem. Get rid of the generation that insists its houses are worth 10,000 times what they paid for it.

I like the way you think!