Move-up Housing Demographic Blues

The media have been announcing the various landmarks of the Baby Boom generation (those born between 1946 and 1964) for years.  In 2006 it was big news when the leading edge of the Baby Boomers turned 60.  Next year, it will be big news when the leading edge of the Baby Boomers turns 65.  The predictions about the impact of Baby Boomers on housing have been fueling excitement about retirement housing options for years, but the creation of all this senior-related housing leaves another problem in its wake: what happens to the housing that the seniors leave behind?

One of the things that we have been hearing for the past couple years during the housing downturn from our clients who develop independent-living housing for seniors and empty-nester oriented condominiums is that one of the key mitigating factors impeding their sales was that their clients were having a difficult time selling their existing homes.  Certainly, the real estate bubble that recently popped and the downturn in the economy have a great deal to do with this, but as we continued to hear these stories, we were inspired to look at some demographic factors to identify whether this was a bubble-related phenomenon or whether it might be the leading edge of a significant change.

We chose to focus on the move-up housing market.  Seniors moving into retirement housing generally have a home to dispose of and are cashing in on their home wealth.  Generally, these senior households have worked their way through the housing continuum into move-up housing.

We started with some underlying assumptions:

  • Households aged 35 to 44 are the prime target market for move-up housing.  We have categorized this age cohort as “Buyers.”
  • Households aged 45 to 64 are considered “status quo” – they may move because of a job transfer or change in economic status, but generally they prefer to stay where they are because they are focused on schools, careers, etc.
  • Household aged 65+ were considered “Sellers.”

We then examined the ratio of buyers to sellers to identify changes over time.  To establish appropriate income to home value ratios, we turned to the 2007 American Housing Survey, the most recent national housing trends report released by the US Census Bureau.  In the American Housing Survey, the median home value to income ratio is 3.2 for all households and 5.0 for households over 65.

We used the 3.2 ratio to establish that an income range of $75,000 to $99,999 for Buyers would equate to move-up housing priced $240,000 to $320,000, standard move-up housing pricing in all but the most expensive markets.  We worked backwards from this price range to establish that at an income to value ratio of 5.0, Seller households would most likely have an income range of $48,000 to $64,000.

We then established moving rates.  Using the 2007 American Housing Survey, we established that 6.3% of age 35 to 44 households moved into an owner-occupied household in the previous year.  To establish some historical trends, we also examined the 1999 American Housing Survey, and found at 6.7% moving rate. We also established that 3.6% of senior households moved out of an owner-occupied situation, either to rent or to own, a ratio constant in both 1999 and 2007.

Using the 2000 Census and 2009 estimates and 2014 projections from ESRI, we established historical ratios of buyers to sellers, as related in the following chart:

United States Households
Age 35 to 44 Income: $75,000 to $99,999
Home to Income Ratio: 3.2
Home Values:$240,000 to $320,000
Age 65+ Income: $48,000 to $64,000
Home to Income Ratio: 5.0

Year 35 to 44 (Buyers) Mover Ratio Moving Buyers 65+ HH (Sellers) Mover Ratio Total Sellers Ratio of Buyers to Sellers
2000 3,121,549 0.067 209,144 1,356,977 0.036 48,851 4.28
2009 3,690,950 0.063 232,530 2,587,048 0.036 93,134 2.50
2014 3,701,783 0.063 233,212 3,278,776 0.038 124,593 1.87

Sources: ESRI, 1999 American Housing Survey, 2007 American Housing Survey, The Danter Company

In our projections, we have assumed that the Baby Boomer generation will want to move into housing options reflecting their lifestyle change at a slightly higher rate than their predecessors, so we have increased the mover ratio to 3.8% – it would not surprise us if this ratio were to end up even higher.

As the chart illustrates, the ratio of the primary buyers of move-up housing to the primary sellers of move-up housing has decreased dramatically over the last decade, from 4.28 potential buyers for every seller to 2.50 buyers for every seller, a decrease of 40%.  This ratio is expected to decrease another 25% over the next five years.  The ratio of 4.28 buyers for every seller is the ratio that supported the move-up market for builders prior to the housing market collapse and fueled unprecedented increases in home values.

These numbers indicate that it will be a buyers’ market for upscale housing for the foreseeable future.  Developers who were waiting for the Baby Boom to watch the retirement housing dollars roll in may be in for a rude awakening.  While Baby Boomers will certainly want to move into housing better reflecting their active lifestyle, the practicality of disposing of their current housing will force many of them into making difficult decisions. Many of them will choose to postpone their lifestyle change or take less than their home is worth and move into a lower-priced option than they would otherwise prefer.  Households who were counting on the equity in their home to support their new lifestyle may have a hard time adjusting to the fact that the equity they have lost over the last few years may not ever return.

In addition to affecting active lifestyle housing, these demographics also are critical in understanding why there may be no coming boom in new housing construction.  Builders who have historically concentrated on the move-up market are caught in the exact same demographic squeeze by the decrease in buyers relative to sellers in this price range.  While there are many households who would prefer a new home, the increasing competition for buyers will likely continue to depress home prices, or at the very least, limit price increases to levels well below those of the last decade when there were almost twice as many buyers out on the market as there will be over the next few years.

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  1. I just wanted to point out that the American Housing Survey is funded and designed by the Department of Housing and Urban Development. The Census Bureau carries out its tasks under contract with HUD.

    David A. Vandenbroucke
    Senior Economist, HUD

  2. Pingback: Senior Housing Market May Not Boom For Awhile | Danter Company Blog

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