Consumption and Real Estate
Will housing prices drastically drop when baby boomers start moving into retirement communities?
Question : Will housing prices drastically drop when baby boomers start moving into retirement communities?
They’re the largest generation in America and are aging. This will leave lots of empty houses on the market.
moving prices
Best answer:
Answer by dukalink6000
Not dramatically
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#2 written by crzyaltego 1 year ago
that should be the least of your worries, who is going to take care of these people, who is going to replace them in the working world, what will happen to our economy when they are not contributing but only consuming from it, alot of them will stay home though because of new medical technologies but in their last years, watch out!!!!
someday there will be a nursing home and hospital on every other block
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#3 written by barbiehow 1 year ago
We’ve already started relocating. Most of us are downsizing, but most of us are adding “luxury” items to our downsizings. I’d say that at the end of it all, when the last baby boomer retires, if y’all don’t allow the illegals in and let them try for citizenship, y’all are gonna have a major problem! Higher taxes, lots of open, unneeded large homes, and lots of expenses paying for our health care.
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#5 written by amosunknown 1 year ago
No, it wont leave empty houses. A lot of baby boomers require the equity in their houses in order to move into retirement communities. IN order to liquidise that equity they will sell their homes. Which means yes, the market will most likely become a buyers market, in theory.
Thats assuming that the vast majority of boomers do in fact move to retire, and to sell in order to do so.
It also depends on housing trends, the value of the homes, and the areas the homes are in as to whether or not they can even be sold.
But i’d say there is a strong chance that the market will be in favor of the buyer during those few years.
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It is already dropping without baby boomers moving to retirement homes.
http://money.cnn.com/2006/09/25/news/economy/homesales2/index.htm?postversion=2006092513
http://money.cnn.com/2006/09/05/real_estate/Ofheo_home_prices/index.htm?postversion=2006090514
It is possible this housing correction will last for a few years, like in early 1990′s.
How to value a property during market downturn?
Housing market continues to slump. Now we can calculate true value of a property easily. As price decline, we don’t need to guess and factor in the potential price appreciation while calculating home value. Without the guesswork, figures are more accurate.
Let’s use following example:
Today, a typical 15 years old, two bedrooms condo/townhouse is priced around $ 500,000 and $ 550,000 in Sunnyvale, California. Rent for similar condo/townhouse is $ 2000/month.
If you are a home owner, $ 2,000/month in rent means $ 20,000 a year in profit ($ 24,000 per year in rent, minus $ 4,000 maintenance costs). A $ 20,000 income is equilevant of owning $ 400,000 bonds or CDs, because current yield of 30 Years U.S. treasuries are 5% (5% of $ 400,000 is $ 20,000). Bank CDs have similiar yields.
In our example, the two bedrooms condo/townhouse is 20% to 25% overpriced. They should be priced at $ 400,000.
It is interesting to note that if we redo the calculation from buyer’s perspective instead of seller’s perspective, the figures are even more shocking.
Mortgage payment consists of two parts: mortgage interests and mortgage principal. The interests portion is similar to rent. If you pay interest, it disappears and doesn’t add equity to the property. To fully simulate characteristics of renting, we assume buyer will apply for a zero down, interest-only loan.
It turns out that rent of $ 2000/month is equivelant to mortgage payment of a $ 340,000 loan at 7.0% APR. And comparing $ 340,000 loan to $ 500,000 or $ 550,000 price tag, from buyer’s view, the two bedrooms condo/townhouse is 30% to 35% overpriced.
One may ask, why is there a discrepancy between two perspectives of the buyer and owner?
The discrepancy is a result of 2% differences in interest rate that buyer borrow comparing to yields of bonds and CDs that owners would get. We understand that buyer would always pay more. That is the premium of buying to own. However, looking from home owner’s perspective, current housing market is probably 20% to 25% overpriced. We recommand investors to wait for a better entry point.