Boomers Must Die (or rent)
| My headline isn’t clickbait if there is a real story behind it. Read on (785 words not my normal 600).
The Wall Street Journal headline read: Home Prices Fell in January for the Seventh Straight Month. The story noted a 0.2% drop in prices (clickbait) but a year over year price increase of 3.8%. The writer continued, “The rise in mortgage rates in the past year has limited home sales and slowed prices.” Similar statements were found in the New York Times and Washington Post. If you read about real estate or watch real estate pornography (HGTV), know that national trends have little application to local real estate. A local market could be 180 degrees different from what a national story reports. For example, prices on the West Coast have seen drops of 7-10% while the East Coast is seeing increases of 8-12%. WT%?
I’m a Boomer so I’m not wishing for anyone’s demise. I’m simply stating a fact the national press is missing. Consider this: 1. There are 70 million Boomers between the ages of 59-77 (U.S. Census). Sixty-five percent of Boomers own their own home compared to 37% of Millennials (Pew Research). 2. The average Boomer life expectancy is 84 years (Social Security Administration). 3. Ten years ago, the average time of stay in a home was 6 years. Today it is 12 years. Many boomers are remodeling their homes and aging in place (Realtor Magazine). But it’s not just Boomers. 4. Ninety percent of homeowners have mortgages of 5% or less and 60% carry a mortgage with a rate of 4% or less. This is the unintended consequence of quantitative easing, a point brought home to me as I finished Christopher Leonard’s “Lords of Easy Money.” In its simplest form. real estate is a demographic problem. Not enough boomers are selling their homes to a millennial home buying generation now larger than the Boomer generation. After working with over 1,800 people to buy a home, here is what the tea leaves are telling me:
B. Housing inventory is not going to increase in the short run, see #’s 1 and 2 above. C. From an historical perspective, a 7% mortgage rate is normal. Since 1971 rates have been at or above 7% more often than not during that 52-year period. We’ve been spoiled by low interest rates since the start of quantitative easing. Home buyers are now feeling the pain of the unintended consequences of artificially low interest rates. If you lock in a 7% mortgage that is affordable you have a home. If rates drop, you then refinance. If rates don’t drop, you have an affordable home at 7%. Trying to “wait out” home prices or mortgage rates is like “timing” the stock market – can’t be done. D. There is a small advantage in looking for a home when fewer people are looking but know that the competition remains tough…and that’s not changing…for a long time. Tea leaves. E. Ideally, you’d have a family member prepared to help you “pay cash” for a home which you will then get a mortgage for. You don’t need the cash, just the ability to say you have the cash and have a 10-15% down payment.
A thought for Boomers: If you own a home and want to maximize your profit, then it’s time to consider selling and taking a tax-free gain. If you net $400,000 and earn a 7% return on investment, you can rent an apartment for up to $2,300 a month without touching the principal while remaining liquid. We’ve quietly counseled many of our past clients on how best to sell. (You learn a lot about the sell mindset when you help 1,800 people buy.) If you are considering selling, contact us for an objective opinion on how best to sell. With our background in real estate and housing rehabilitation, don’t consider us just real estate agents – consider us your real estate resource Thanks for reading, This email was sent to [email address suppressed]. |
Rising mortgage rates aren’t limiting sales in our 4-County area. The real problem for home buyers: Inventory. The solution: Boomers must die (or rent).
A. I’ve owned over 20 properties purchased with initial mortgage rates of 15%, 9% , 7%, 3% and most recently 5.85%. On a net basis, I’ve never lost money if I held the home for 5+ years.
F. It’s hard work to buy a home today and I don’t see it getting easier in the near term. As I tell our clients, we have a process and with some hard work and luck we will accomplish the task. Said more eloquently: Luck is what happens when preparation meets opportunity.