Some economists say the baby boomers aren’t selling their homes like previous generations did and not downsizing fast enough – and that leads to shortages of homes for sale and rising prices.
Baby boomers are “clogging up the whole chain of home sales,” says Sean Becketti, chief economist of Freddie Mac. “They appear to be staying in the family home longer than previous generations, and the imbalance between housing demand and supply continues to boost prices.”
Baby boomers are big players in real estate. In 2013, people age 55 and older controlled two-thirds of all home equity, according to the Federal Reserve’s most recent Survey of Consumer Finances.
In previous generations, once the kids moved out of the house, empty nesters tended to downsize and move to smaller homes or rent apartments. But so far, boomers haven’t made a move.
“Economists say boomers’ slower-than-expected rate of downsizing and selling is playing a contributing role in supply, demand and pricing imbalances in local housing markets – not creating those imbalances,” The Washington Post reports.
Lawrence Yun, chief economist for the National Association of Realtors®, told The Washington Post that the lingering effects of the housing market crisis and the Great Recession may be the reason more baby boomers are postponing their moves. From 2008 to 2011, homeowners of all ages lost lots of equity, and many of them may still be rebuilding equity to allow them to sell without having to bring money to closing.
But Fannie Mae’s Patrick Simmons, an economics and strategic research group director, says that the real estate pipeline clog caused by baby boomers probably won’t last much longer.
“Boomers will not inhabit this vast inventory [32 million homes] forever,” he says. Their circumstances will inevitably change with age and they will move, and “their actions will reverberate through the housing market.”
Thinking about downsizing into a smaller home, maybe a 55 plus community, renting, or just purchasing a smaller home. Click here to view some communities that you may be interested in.
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Phil Schaal owns three rental houses in Pompano Beach and one in Lantana. He bought with an eye on the future.
“In today’s market, being a landlord is one the best ways to secure long-term wealth,” said Schaal, a software developer and father of 6-year-old triplets. “This is my retirement.”
During the housing boom and after the six-year downturn, buying, fixing up and “flipping” homes resulted in big profits for many South Florida investors. And while that business model is still viable, a new wave of investors is seeing the benefit of buying homes and keeping them as rentals.
An investor can earn a solid return of 15 percent by flipping a home – but it’s only a one-time deal, said Daren Blomquist, a vice president of RealtyTrac, a foreclosure listing firm in Irvine, Calif. The key is finding more discounted properties to flip, but that’s difficult because fewer distressed homes are available for sale in a market that has long since recovered, he said.
But an investor who buys a home and turns it into a rental can expect recurring profits, something in the range of 6 percent to 9 percent annually, Blomquist said. And there is no shortage of prospective tenants, with former homeowners and young professionals unable to qualify for mortgages or choosing to remain mobile for jobs.
“With buying and renting, you’re getting the best of both worlds,” Blomquist said. “You’re getting returns coming in every year, plus you get the long-term [home value] appreciation. It’s like a stock with dividends.”
RealtyTrac doesn’t specifically count the number of investors who buy and rent, but the firm does track non-owner-occupied properties – the vast majority of which are owned by investor-landlords.
In Palm Beach, Broward and Miami-Dade counties, 31 percent of single-family homes, townhomes and condominiums are owned by people who don’t live there. Among the 35 largest housing markets nationwide, only Las Vegas (40 percent) and Orlando (33) have higher percentages, RealtyTrac said.
Schaal bought his Pompano Beach and Lantana properties over the past three years – in each case finding deals for $100,000 or less.
He put an average of $10,000 into each property, repairing roofs, fixing safety or code violations and renovating kitchens and bathrooms.
In Lantana, he added purple and pink flowers out front and repainted the exterior of the brown house a light yellow.
“You want to make sure that when the person walks up to the house, they have a positive experience,” Schaal said. “It’s about curb appeal.”
Schaal rents the homes for $1,100 to $1,300 a month – less than what he could get, given the strong demand. The average monthly rental rate for single-family homes in South Florida in September was $1,810, up 2 percent from a year earlier and 18 percent since September 2011, according to real estate website Zillow.com.
But Schaal said he’s willing to sacrifice rental income to keep good tenants in place. His policy is to maintain the same rent rate until the tenant moves out, and then he raises it closer to market value for a new resident.
Schaal learned about the booming rental business from two Boca Raton-based groups for investors: the Distressed Real Estate Institute, headed by Lex Levinrad, and David Dweck’s Boca Real Estate Investment Club.
Schaal attended a weekend-long investor “boot camp” that included a bus tour of properties for sale. During the tour, Schaal discussed with Levinrad the potential for one of the homes – a three-bedroom residence off Federal Highway in Pompano.
The house needed plenty of work, but the numbers made sense, and Schaal signed a contract that same day to buy it for $56,000.
While he puts some of his own money into deals, Schaal said he obtains mortgage financing from private lender Dweck. After he fixes up the homes, Schaal refinances at a lower interest rate with conventional lenders.
Some investors end up losing money because they spend too much for the homes and don’t accurately account for repair costs. Levinrad tells club members not to buy a home for more than 65 percent of market value after repairs.
So if $10,000 in renovations boosts a house’s value to $150,000, the most an investor should pay is $87,500.
With home prices on the rise, it’s harder to find properties that fit the criteria. Levinrad suggests investors monitor online auction websites such as Auction.com and stay in touch with property listing agents. In many cases, previous deals fall through and persistent investors can quickly take advantage, Levinrad said.
The real estate clubs also work with members on becoming landlords. Refrigerators break, taxes and insurance must be paid annually and problem tenants have to be evicted – all factors that must be considered when getting into the business.
“It’s not all gravy,” Levinrad said. “There is some work in it. But there’s also a substantial reward in cash flow, if you buy the homes right.”
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Florida Vacation Home For Sale in the popular Westridge Community this fully furnished, south facing pool home is currently a vacation home home but would make a great primary residence. Formal living room and separate dining room provide plenty of space for a growing family while outside the south facing pool and spa has lots of deck space and a covered patio area providing entertaining or just enjoying the Florida sunshine.
This villa occupies a spacious corner plot with good privacy and a fenced in rear yard. It has a large open plan lounge with gallery ceilings. The master ensuite is very spacious and offers a double walk in shower. Garage is converted into a games room. Quick and easy access to Disney (10 min) would make this ideal for a vacation home or permanent residence. With an oversized heated pool and spa installed in 2007, this home has plenty of space inside and out for entertaining or relaxing in the Florida sun.
