This month I find myself juggling two opposing, yet equally viable, interpretations of our real estate market. One is that the stuttering rate of sales this year will fall into step with the increasing flow of inventory and we’ll ease from spring into typical summer and fall markets. The other is that this spring’s slightly soft rate of sales may be the tip of the proverbial iceberg – and we’re the Titanic.
We’ve all known that a massive economic transformation was inevitable in the early 21st century, as Baby Boomers age. Is it possible that this has already begun?
As I said in my prior market report, April started out strangely cool and it could have been a blip – or not. It seems like not, albeit ever so subtly. We still have slightly more housing inventory than last year, and it’s taking just 2 days longer on average to sell them. Now it will take the average OC home 63 days to sell, versus 61 days a few weeks ago. While this is still a sellers’ market, my concern is that this trend is the opposite of normal. Sales should have occurred 2 days faster, effectively making the difference 4 days longer. We’re moving in the wrong direction.
It’s hard to interpret this data because, as always, homes within different price ranges and cities sell at remarkably different rates as shown below. (Note OC homes are selling within 1.2% of list price.)
|OC City / Area||Average Days on Market||Average List Price|
|Orange County Overall||63||$1,700,000|
|Corona Del Mar||109||$4,400,000|
|Rancho Mission Viejo||133||
What concerns me is how many sellers enter the market in the coming 60 days. My bet is a LOT.
If I am correct and a deluge of well intentioned sellers all decide to sell their homes in summer then the scales may tip. Fast. And who owns more real estate than any other generation? Baby Boomers. Statistics indicate they own 70% of all US assets – this includes housing.
Mr. John Grace of Investors Advantage shared that according to Dent Research, the average American has purchased their most expensive home at age 41, and the same average American sold it at age 71. (Data fascinates me.)
Guess who’s turning 71? Baby Boomers. Loads of them – starting last year through 2034 or so.
Mr. Grace is convinced the “real crash” in 2008 was simply diverted and will come to roost in a chilling way in another 8 years, when this massive aging population outlives their income and is forced to divest real estate. When asked “How bad can it get?” he says “Dent research suggests prices could drop from -58% to -72% in Los Angeles, San Francisco and San Diego markets.”
Ken Dychtwald, who authored “Age Wave” predicted an economic slowdown starting in 2007-2009 when Boomers started retiring. This was coincidentally the exact same time as the mortgage crisis. The combination may possibly have started a downward spiral, the enormity of which we have yet to understand.
According to Dychtwald, the Age Wave will also put unprecedented pressure on families, communities and governments as multiplying numbers of older adults strain entitlements, eldercare, healthcare delivery and pensions.
Some argue that this strain on institutional employers servicing huge pension portfolios will handcuff cities and government agencies, depress corporate earnings and stock market investments, eroding the Boomers retirement income. Economic and governmental policy revisions will also likely be at the expense of younger generations following Boomers.
Real estate industry behemoth Zillow now predicts the next US recession will be in 2020 and it will likely be triggered by monetary policy, whereas nine months ago they predicted geopolitical events as a likely trigger. The year 2020 is also when 25% of our workforce turns 55. Interesting.
Okay. So most experts agree that the 76 million American Baby Boomers aging and retiring will strain our economy to a breaking point. And while exactly when this will happen is up for debate, they all seem to be centering on 2008 – 2020. Yep – pretty much now.
So where does this leave us? If you expected to sell your home in the next few years, you may want to consider selling now while we’re seeing all time high prices, and sitting on the cash for a while. And if you’re looking for an investment, I still say buy the least expensive homes you can find in areas closest to work centers, colleges and commute corridors. These will provide attractive income regardless of what happens. I’m bullish on Orange, Anaheim, Costa Mesa (go Chargers!) and Santa Ana.
If you’re looking to move to Laguna Beach it’s a great time to do it. Buy now and stay put. While other luxury markets are great for sellers now, I’d sit tight as a buyer there. I can find you a lovely rental while you wait. You may want to pick up an investment in the $500,000 and under price range for a tax write off with cash flow instead.
If you’re renting now and are not self employed, you should still look into buying a home to live in. Rents will continue to rise, for a while anyway, and interest rates are definitely increasing. Both excellent reasons to own versus rent.
So get with it! Buy now and stay put. Or if you own a $1 million+ property and are looking forward to retiring anytime in the next decade – let’s talk about selling it NOW while prices are high.