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Can Millennials confront the looming threat of aging Baby Boomers?
The Silent Generation and Baby Boomers are sitting on a whopping $13.5 trillion worth of home inventory, but aging Boomers are expected to trigger a large exodus from the housing market in upcoming years.
Fannie Mae indicated that Baby Boomers currently inhabit 32 million owner-occupied homes, which accounts for 40% of homeowners in the United States. Notably, Baby Boomer life expectancy has increased, but instead of “aging in place,” a growing percentage are abandoning homeownership and renting.
In May, the National Association of Home Builders reported that home sales to homebuyers over the age of 55 fell an astonishing nine points.
The U.S. Census Bureau attributed the decrease in senior homeownership to factors like changing lifestyles, housing crash backlash or an inability to downsize due to lack of affordable homes.
The number of Baby Boomers exiting the housing market is only expected to increase, spurring fears of a bursting “generational housing bubble” in which Millennial homeownership demand cannot fill the void, according to Fannie Mae.
Millennials typically face more obstacles when buying homes than other generations, due to factors like unemployment and personal debt. In fact, 87% of Millennials claimed to encounter obstacles that delayed home-buying plans, according to Trulia. Furthermore, an increasing amount of Millennials are foregoing family expansion and remaining renters themselves.
Fannie Mae believes the intergenerational handoff could have repercussions for the housing market and economy, therefore altering the long-term demand-supply balance and negatively affecting home prices and sales.
In order to confront this harsh truth, government and industry efforts will be needed to mitigate possible adverse market impacts that will likely need to span generations, according to Fannie Mae.
Fannie Mae states that the housing industry can achieve this by implementing business and policy interventions designed to facilitate an orderly handoff of Boomer housing assets to younger generations.
For example, in the last several years mortgages with lower down-payment requirements and more flexible debt-to-income ratios have launched Millennials into homeownership, enabling them to grow equity that might eventually position them to purchase homes vacated by Boomers, according to Fannie.
Although student debt threatens mortgage payment capacity, the promotion of higher education and job skills could also position Millennials for homeownership. In fact, First American determined that the correlation between homeownership and education has nearly doubled in the past 10 years.
As aging Baby Boomers exit the housing market, the industry will need to discover ways to ensure Millennials pick up where Boomers left off.