Executive Summary
Globally , the real estate market has had to contend with various generational shift s . In the United States (U.S), the bursting of the housing bubble and resultant e conomic recession significant ly affected the baby boomer generatio n due to its grasp of the real estate sector . Subsequently , finding suitable locations at lower price s and accessing quality housing ha ve become issues of concern in the real estate market. Against this backdrop , this research paper examine s the effects of generational trends on the housing market . Specifically, the paper will focus on the baby boomer generation and their effect s on the real estate sector .
Literature Review
In the U.S, the real estate sector comprises of commercial real estate, industrial real estate and lastly, residential real estate ( DiPasquale & Wheaton, 1992) . The commercial component is focused on real estate meant for business purposes and includes retail as well as office space. Industrial component, on the other hand, deals with production and manufacturing, with plants taking the biggest portion of the industrial real estate. The residential real estate sector is focused on the purchase and sale of properties for non-business purposes. The health of the industry is gauged by investors and analysts using various metric ( DiPasquale & Wheaton, 1992) . These metrics vary for the three segments. However, the segments are characterized by Real Estate Investment Trusts (REITs). The investors use the stock price of the REITs to analyze and determine industry trends. The American Residential Properties and National Retail Properties Inc. are the most popular REITs in the U.S residential sector. Further, the residential real estate sector ’s health is gauged using the home prices. Thus, the fact that baby boomers influence the prices of homes and other trends in the residential real estate sector justifies the need for this research paper.
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According to Lusardi & Mitchell (2007), the vast baby boomer generation which was born between 1946 and 1967 has been dominant in the housing market. In support of this argument , Haas & Serow (2012) cite that the generation forms the highest age cohort . Thus, the demand for housing increased as the generation passed each lifecycle. Conseque n t ly, the baby boomer generation has influenced both Generation X and the Millennial. As members of the generation began purchas ing homes in the 1970s, the process of gentrification of the different towns and residential upcountry locations also intensified . Further, the ir subsequent entry into the middle -income group as a result of the ir increas ed earnings and expenditure significantly impact ed the housing market. Undoubtedly , the baby boomers are bound to retire, relocate and to eventual ly withdraw from the real estate market in the future . Hence, the most fundamental facet of this paper is the implication of the withdrawal of baby boomers from the real estate industry (Lusardi & Mitchell, 2007).
Baby Boomers and their Influence on Real Estate
The 2007-2008 recession had a tremendous impact on the real estate industry . The phenomenon significantly affected the baby boomers with many having to deal with a vulnerable housing sector (Lusardi & Mitchell, 2007). Despite efforts to foster stability in the housing market over the years, various significant challenges have emerge d . For instance , according to statistic s, the ratio of seniors to the working age baby boomers will increase by up to 30% in the next decades (Haas & Serow, 2012). Accordingly, this will lead to an increase in the number of houses available for sale in comparison to the buyers willing to purchase. Therefore , the exit of the baby boomers from the housing market will have adverse effects on ownership and entry of Generation X to the real estate sector. Scholars have also argued that there is a high likelihood for prices to escalate , combined with the emergence of a housing bubble.
Before to the 2007 recession, there intensified discussio ns on the potential for a real estate bubble and its effects on the demand and supply (Lusardi & Mitchell, 2007). Following the meltdown of the housing sector, the baby boomers were faced with various challenges including price reductions and foreclosures. Indeed , the se problems are of concern in the current environment. T he imminent exit of baby boomers from the housing market is also detrimental because it c an result in a lasting generational impact ( Myers & Ryu, 2008). This is because the baby boomers presently command a significant stake in the real estate sector . Likewise, t hey have been influential in the local planning and development in the past twenty-five years. Most importantly, however, baby boomers have significantly impact ed the housing demand.
Haas & Serow (2012) assert that there is a direct relationship between the age of baby boomers and the housing demand . Based on demographics , it is clear that the baby boomers ’ mobility has been on a downward trend. As the baby boomers age , their preference f o r mov ing from one place to another is declining . There is a consensus amongst various studies that home ownership among the baby boomers has been varying primarily among the older age cohorts (Lusardi & Mitchell, 2007). Therefore , according to Myers & Ryu (2008), the U.S is grappling with a brief housing market bubble that is nested upon the baby boomers. Further , they argue that the bubble is bound to increase enormously in the long run as the baby boomers age. In this light , the demographic pressure is an issue of concern and requires timely interventions to prevent any future implications on the housing market .
Effects of the Withdrawal of Baby Boomers from the Housing Market
C urrently , the existing gap between generations is an issue of concern ( Haas & Serow (2012). The withdrawal of baby boomers from the real estate sector will further increase this gap. Moreover , the risk of a generational housing bubble which will result in various adverse outcomes will be intensified . One such implication is the upsurge of real estate prices (Lusardi & Mitchell, 2007). The price increase will subsequently affect Generation X and Millennial s’ access to hous ing . Thus , the financing terms will be less favorable to the two generations posing a significant challeng e . I t is clear that without speci fic initiatives geared towards encouraging other generations to make investments in the real estate sector, the imbalance between the aging baby boomer sellers and the other generations will escalate ( Myers & Ryu, 2008). Additionally , in the instance that the tipping point is reached , real estate market adjustments will be slow and will thus result in a greater impact on the housing bubble. Myers & Ryu (2008) affirm that supply of housing in the future will increase due to the aging baby boomers . However, this will be followed by reduced demand by the other generations due to reduc ed incentives for investing in the real estate market .
Conclusion
Baby boomers have a tremendous impact on the real estate market both in the present and in future. As highlighted above , baby boomers played a pivotal role in stabiliz ing the housing market after the recession. However, present ly, a demographic challenge prevails. This is due to the aging of the baby boomer generation, which is bound to result in reduced investments in the real estate sector. Further, a housing bubble is likely to occur in the future . The phenomenon will be fuelled by the decline in incentives for Generation X and the Millennial s to invest in the sector. The aging baby boomers will fuel a market in which the supply of housing exceeds the demand , inevitably resulting in price variations . Moreover , a price upsurge, as opposed to a reduction will prevail in the real estate sector . Overall, the impact of baby boomers on the real estate sector is currently indisputable. Likewise, the trend will remain unaltered in the future. This calls for various interventions to ensure the stability of the sector by mitigating any adverse impacts.
References
DiPasquale, D., & Wheaton, W. C. (1992). The markets for real estate assets and space: A conceptual framework. Real Estate Economics , 20 (2), 181-198.
Haas, W. H., & Serow, W. J. (2012). The baby boom, amenity retirement migration, and retirement communities: will the golden age of retirement continue ? Research on Aging , 24 (1), 150-164.
Lusardi, A., & Mitchell, O. S. (2007). Baby boomer retirement security: The roles of planning, financial literacy, and housing wealth. Journal of Monetary Economics , 54 (1), 205-224.
Myers, D., & Ryu, S. (2008). Aging baby boomers and the Generational Housing Bubble: Foresight and Mitigation of an Epic Transition. Journal of the American Planning Association , 74 (1), 17-33.
