Study Suggests “Generational Housing Bubble”

“The housing market has a new problem:  aging Americans” suggest the editors of the Economist magazine in a recent article.  A study released recently by researchers at the University of Southern California suggests that the approaching conversion of baby-boomers from net home buyers to net home sellers will effect a significant shift in the residential housing market.  According to the study, the trend will likely last until at least 2030 when the last boomers turn 65.

The premise of the paper is that an ongoing, robust supply of buyers aged 30-34 who are able to Cfn640 afford housing stock at current pricing is essential for a balanced market.  With sellers potentially outnumbering able buyers by a significant number by 2010, the study’s authors suggest this slack will cause the “generational housing bubble” to pop.  The result:  Downward correction in the price of houses in many states.  Younger buyers’ growing reticence about buying in a downward market may compound this trend, creating a painful cycle for sellers.  And, of course, the erosion of retirement savings locked in housing equity will create additional issues for boomers individually and all of us by proxy.   

Donjek was recently hired by the Local Initiatives Support Corporation (LISC) to examine promising models nationwide for cushioning neighborhoods from the impact of foreclosure-related vacancies.  In the preliminary phase of this project, I’ve encountered an excellent 2006 study of the impact of foreclosure on neighboring property values, and a more recent analysis of the same topic.  These kinds of analytic methods, and the kinds of programmatic responses that LISC seeks to develop, may have additional value – 30 years into the future.

Graphic:  Courtesy of Economist magazine.