Yahoo Finance 5 Ways Boomers Are Controlling the Housing Market Again
Baby boomers make up the largest share of homebuyers and sellers across the nation, according to the National Association of Realtors’ 2023 Home Buyers and Sellers Generational Trends Report.
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“Baby boomers have the upper hand in the homebuying market,” said Jessica Lautz, deputy chief economist and vice president of research for NAR. “The majority of them are repeat buyers who have housing equity to propel them into their dream home, be it a place to enjoy retirement or a home near friends and family. They are living healthier and longer lives and making housing trades later in life.”
Here are five ways boomers gained control of the housing market and the effect it’s having on younger generations who want to buy a home.
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Equity Accumulation
According to the NAR report, boomers are most likely to leverage the equity from a past home to make a new purchase. This older generation tends to be in their current home the longest, which means they are in a more favorable equity position than younger generations.
Dennis Shirshikov, head of growth at GoSummer and a professor at the City University of New York, where he teaches finance, economics and accounting, echoed the idea that boomers have had decades to pay down mortgages and build substantial equity in their homes.
“This equity allows them to reinvest in the market, often buying second homes or investment properties without the need for large mortgages,” he said.
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Higher Savings Rates
Boomers also have money on their side.
“Compared to younger generations, boomers generally have higher savings rates and more substantial retirement funds, giving them the financial flexibility to make significant real estate investments,” Shirshikov said.
Downsizing and Upsizing
Shirshikov explained that many boomers are either downsizing from larger family homes to smaller, more manageable properties or upsizing to luxury homes in desirable locations.
He said that by doing so, boomers effectively dominate both ends of the market spectrum.
According to the NAR report, boomers are stating more and more their desire to downsize and purchase a smaller home.
Cash Purchases
If cash is king in real estate, many boomers are in a prime position.
“With considerable equity and savings, many boomers can make cash purchases, making their offers more attractive in a competitive market and reducing their reliance on financing,” Shirshikov said.
Stability and Low Interest Rates
Shirshikov also explained that because boomers have benefited from periods of low interest rates, it has allowed them to secure favorable mortgage terms and refinance existing loans to free up additional capital for further investments.
What’s the Impact on Younger Generations?
According to the NAR report, between July 2021 and June 2022, baby boomers accounted for 53% of sellers and 39% of buyers — the most of any generation. Additionally, millennials, who once dominated the housing market, only accounted for 28% of buyers and 18% of sellers.
According to Shirshikov, the control of the housing market by boomers has the following implications for younger generations.
Increased Competition
“Younger buyers often find themselves competing with well-funded boomers, making it challenging to secure properties, especially in desirable areas,” Shirshikov said.
Higher Prices
Shirshikov also noted that the demand driven by boomer investments can lead to higher property prices, which makes it harder for first-time buyers to enter the market.
According to the NAR report, first-time homebuyers don’t have the advantage of using funds from the sale of a previous home for a down payment on a new home. Plus, they’ve faced the challenges of higher mortgage rates.
Rental Market Pressure
According to Shirshikov, as more boomers purchase rental properties, rental rates can increase, placing additional financial strain on younger renters who are trying to save for a down payment.
Limited Inventory
Additionally, the trend of boomers holding onto their homes longer or buying multiple properties reduces the available inventory, Shirshikov said, exacerbating supply shortages and driving up prices.
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This article originally appeared on GOBankingRates.com: 5 Ways Boomers Are Controlling the Housing Market Again
