patrick.net

The Baby Boomers' impact on the housing bubble has frequently come up in many past threads, for a variety of reasons.

Some of the housing bulls have argued that high Boomer participation in the current market is evidence that there is no bubble (demand from the demographic "lump in the snake" reaching its peak) and that boomer wealth will keep housing prices sky-high. The NAR, for example, often points out that the national ownership rate is 70%, and that previous generations have historically hit their peak ownership rate (approx. 80%) somewhere between ages 60-74 (tinyurl.com/7unas). The oldest boomers are now a year away from 60, while the youngest boomers are only 41 --a long way from that "peak" homeownership range. Of course what they don't mention is that the 70% figure is an average ownership rate for all age groups. If you average lower-ownership young people with higher-ownership old people, you'll always get a rate well below the peak.

Housing bulls have long pointed out that, while boomers are indeed numerous, their high participation in the current market does not prove there's no bubble. If boomers are purchasing as speculators/flippers and not as primary owners (who live in the properties they buy), then what generation they belong to is largely irrelevant. Speculation is still what's causing the demand --not the fundamental need to have a place to live in. The fact that national housing production now exceeds population growth by 300,000 units per year (tinyurl.com/ahqpu) strongly supports this argument. In fact if boomer speculators/flippers all rush for the exits at the same time, their large numbers can work strongly against housing. Their collective selling could even trigger a panic and severely depress the market.

Then there have also been lively discussions about the nation's abysmal savings rate (near 0%), historically high debt-load (both housing and non-housing) and the huge projected liabilites our government has to retirees in the form of Medicare and Social Security. What will happen in coming years when boomers begin to retire en masse and there aren't enough new workers paying into the system to support them all? Will boomers simply demand that the government raise taxes on everyone else to sustain the system? Or, will they be forced to work longer or take a massive cut in lifestyle (or both)? Boomers have shown a disturbingly high willingness to transfer costs onto future generations (witness National Debt, Prop. 13, etc.) and a general unwillingness to sacrifice or defer immediate gratification for themselves (see virtually any post by Surfer-X). How do you think these future liabilities will play out?

HARM

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