Seller Testimonial – Wellesley

Michelle was very supportive and understanding in dealing with a sale of our Mom’s house. Mom is 85 and leaving her home of 58 years so it was a big deal. Michelle also dealt smoothly with two siblings on opposite side of the country. Her communication was responsive, clear and we always felt that she was doing her best for us. There were some ups and downs in finding the right buyer and Michelle kept working her networks to keep us the process which was ultimately successful and we were very pleased with the final price and the overall process. 

Joel Kushner, CA

How much Should you Spend on Home Maintenance?

June 30, 2016 by Michelle J. Lane, Realtor®

As a Realtor who specializes in homes that are part of an estate, I have seen a great deal of deferred maintenance in my time.

The two main reasons are:

  • these are the homes of people who lived through the great depression and have the mindset that they will fix what needs fixing, but no more. They see no point in changing things out if they are not broken.
  • The other reason is these are homes of people on fixed incomes – usually one person who has outlived their spouse for a number of years. So the money to keep the place up is not available.

The area I sell in – Newton, MA and the surrounding area – is considered affluent for the most part.  For the purposes of this article, I am focusing on what would be considered the middle or working class who own homes.  The affluent can spend far more than the rule of thumb would suggest and often do.

The generally accepted rule of thumb is that a homeowner should spend roughly 1-3% of the value of the home to maintain and improve.  Of course, that would vary depending on home values in your area.  In Newton, home prices start at $500K.  Most people are not going to spend $15K per year on tiny bungalow.  So, in expensive areas, where a high-priced home is still small, the rule of thumb is closer to the 1%.

Of course, you are not going to spend this each and every year.  But you do need to put the money aside.  When the roof or any other major component goes, you will need to have that money available to replace it.

You may be tempted to spend it on the more fun things like décor and furnishings.  That’s a lot more enjoyable than replacing a furnace or a roof – what seem like invisible improvements.  But deferring the maintenance greatly reduces the value of the property and hurts its ability to sell quickly, even in a hot market.

You are probably hearing all the stories about bidding wars, especially in the hot markets like the Boston. And you might think that any house will sell.  But bidding wars are happening with the houses that are in move-in condition.  Not on houses that need a lot of repair.  Today’s buyers just don’t have the money to make the repairs after buying a home.  And they are not able to make the repairs themselves.  All the reasons for that will be in a follow on blog post, so stay tuned for that.  This one will be long enough!

When clients have deferred maintenance on their homes, I have to explain why their home is not worth as much as their neighbors that was in better condition when it sold.  I actually have people say they don’t understand why today’s buyers are so fussy.  What’s wrong with Formica countertops and linoleum floors?  The old appliances are built better, etc.  Aside from aesthetics of the home starting to look a bit beat and shabby, it matters because everything used to build your home has a set lifespan.  Sure, we agents call all tell stories of homes that are time capsules where everything put in the house 50 years ago is still there and working.  I even sold a 1912 home with its original furnace that was still running.  But those are the exceptions, not the rule.  Everything is going to go sooner or later.

To give you an idea of when that sooner or later is, the chart in this article breaks down the Average Life Span of Homes, Appliances and Mechanicals.  This will not only help you plan for replacement of these items in your house, but should help buyers know how much they are going to have to put into a house they are buying and when they can expect to spend that money.

The contents of this chart have come from several sources, mainly a This Old House article.   http://www.thisoldhouse.com/toh/article/0,,216991-4,00.html    They even give a rough estimate of the cost to replace each item.

Average Life Span of Household Components

Appliance Items Lifespan
Kitchen Appliances 10-20 years
Central A/C 15 years
Electric Water Heater 11-14 ones that are SS lined can last longer
Furnace (Hot Air) 15
Hot Water Boiler 20-30
Thermostats 35

 

Roofing Lifespan
Asphalt / Rubber 10-25+
Wood Shingles 10-40
Metal 25-40
Clay Tile / Concrete Tile / Slate / Copper 50+

 

Flooring Lifespan
Carpeting 8-10 (I’ve seen it left unreplaced for 50+)
Linoleum / Vinyl / Laminae 25
Engineered Wood / Concrete 50
Bamboo / Hardwood / Tile / Marble / Slate 100+

 

Garages Lifespan
Garage Door 20-25
Garage Door Opener 10-15
Light inserts 20

 

Footing and Basement Lifespan
Poured Concrete / Fieldstone / Concrete Block 100+
Sump Pump 5-12
Bamboo / Hardwood / Tile / Marble / Slate 100+

 

Materials Lifespan
Wood – Floors / Doors / Cabinets / Windows / Millwork 100+
Cast Iron  – Tubs / Pipes 50+
PVC Pipe 50+
Fiberglass 10-15
Bamboo / Hardwood / Tile / Marble / Slate 100+
Porcelain – Sinks / Toilets 50
Engineered Trim 30
Insulation 100+
Hardboard / Flooring Underlayment / Softwood 30
Particleboard / Plywood 60

 

Electrical Lifespan
Accessories and Controls 10+
Copper wiring 100+

 

Exterior Lifespan
Brick / Stone / Engineered Wood / Fiber Cement 100+
Vinyl 20+
Engineered Wood / Concrete 50
Stucco 50-100
Paint 7
Mortar 25-50
Caulking 5-10
Decks 10-30
Aluminum Downspouts / Gutters 20-30
Galvanized Steel Downspouts / Gutters 20
Copper Downspouts 100+
Window Glazing 10+

 

Notice that natural materials – stone, brick, wood, cast iron, have a very long life span.  Which is why homes with these materials in abundance are worth more than homes with linoleum, carpets and fabricated materials.  There are exceptions – PVC lasts as do some engineered woods.  And this will improve over time.  But the difference is that natural materials develop a patina over time that gives them character.  Fabricated materials just get shabbier over time.  Not to discourage any one from using them.  There is not the same supply of natural materials that there once was so new construction has to move to these newer materials.  And some building codes require them.  But scarcity is another element that gives the natural materials value.

All of these life spans are averages – they will vary based on how well used items are and the climate.  And, of course, on how well you maintain the house.  A leaking roof will rapidly deteriorate interior components.  But this should serve as a good planning tool – for maintenance and for knowing what a buyer will mentally deduct to come up with the market value of your home at the time of sale.

Now there are always exceptions.  A good number of the estate homes I sell are more valuable to a builder for the land they sit on than they would be for a home buyer to live in.  So if you are thinking of selling your home and not sure where you fall, contact me before you do any work on your home and I will let you know the value of your home as it stands and with repairs and upgrades.

Michelle J. Lane
MICHELLE J. LANE, Realtor
Century 21 Commonwealth
CELL: 617 584-3904

 

 

 

Granny Pods

No, these are not alien pods that pop out grandmother aliens.  These are hospital size structures that get dropped into your backyard to give your elderly parent an option to living in their children’s home or a nursing home. The official name is Auxillary Dwelling Unit (ADU) .

Several companies make these dwellings, MEDCottage in VA, FabCab in Seattle and Practical Assisted Living in CT. HomeStore, here in MA builds modular additions.  That would, of course, work only if you have enough land to support the addition.

The 12×24-foot prefabricated house starts at $85,000 — less than the cost of traditional long-term elder care — and includes innovative safety features like webcams and cushioned floors that allow the family member privacy and the caregiver freedom.

Granny Pod

Basically, a large free-standing hospital room, features of these homes include:

  • Models that can run from approximately 300-600sf.
  • Electricity and water connected directly to homeowner’s utilities
  • A kitchen with a small refrigerator, microwave, and medication dispenser.
  • Bedroom and additional accommodation for a caregiver’s visit.
  • The bathroom is handicapped accessible.

Virginia is recognizing them as “temporary family health-care structures.”  It will be interesting to see whether or not towns in MA will accept them.  It seems they are a great alternative that avoids the friction of having an elder parent in the house without putting them in a nursing home, which is a struggle for most children.

It also preserves the family wealth for the time that the parent is not in a nursing home at $5K-$10K per month.

More information can be found at http://www.medcottage.com/

If any of our Massachusetts readers look into it, we would love to get your thoughts.

Contact Me if you are ready to talk about options for your parents.

Me

Michelle J. Lane
Century 21 Commonwealth

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20 Tips for Cleaning Out Your Parent’s Home and Preparing for Its Sale

by Michelle J. Lane

As a Realtor who is a Senior Real Estate specialist, my team specializes in helping families make sure the home is cleared out and ready to sell at the best price possible.  I have a long list of resources and good tips getting through this process.  For families that do not live near their parents’ home, we can even manage the whole process for you.  We take as much of this burden as possible off the family, knowing how difficult it is to make decisions during an emotional time.  Below are recommendations for those who want to and can take on these tasks on their own:

  1.  If at all possible, don’t wait until the last moment to clean things out.  I realize it can be difficult to go through your parent’s things with them while they are still living in the house.  They may resist.  But there is a lifetime of bank statements, insurance policies, and investment records l in that home, along with tons of paper that should have been tossed long ago.  At the time of their passing, your emotions will be raw and you will be overwhelmed with making arrangements, going through decades of paperwork will be the last thing you want to do.
  2. If it is too late to do it ahead of time, be thorough, you will need to have all their documents in hand to do the final tax return and to make sure no assets go undiscovered.  As tedious as it is to go through all their files, you never know what important documents you will uncover.
  3. Hire an estate attorney (if your parent’s didn’t already have one) who can help you transfer the assets to named beneficiaries.  You will also need to get a “license to sell” in order to put the home on the market.
  4. After talking to that attorney, consider hiring a shredding company or getting a good fire going with the paperwork you clearly do not need.  It is not a good idea to toss these papers in a dumpster as they may contain confidential information.
  5. Find out what everything is worth before you start giving it away or tossing it.  If you believe there are valuables in the home, hire an estate appraiser to value furniture, jewelry and antiques.  The appraiser will give you an estimate for each item, charging an hourly fee. The cost will depend on the type of appraisal you want.  You might pay $100 to $250 an hour for a general appraisal; $300 an hour for a fine arts appraisal or a fee per item for a written appraisal on high value pieces.   An appraiser can also tell you the best way to get top dollar for the property whether that is an estate sale, auction or having antique shop owners come and buy items.   If you are going to sell to the appraiser or an antique shop, be sure to speak to at least two so that you know you are getting a fair price.  The appraiser may also suggest a consignment shop, but my experience is that families just want to be done with it and not have to track items that are put up for sale in a consignment shop.
  6. Before dissolving the furniture and décor, let your Realtor walk through and tell you what should stay to stage the house for sale.  They may say nothing should stay if it is all dated and worn, but if the furniture has redeeming décor value, houses will typically show better with some furnishings than completely empty.
  7. To avoid any hard feelings, let family have the first choice of your parent’s belongings before selling them off or giving them away.  Have your siblings create a wish list of the items they’d like from the estate.  Do this as early in the process as possible so that siblings’ imaginations don’t run away with them thinking that the child taking the lead is walking out of the house with favorite items.  Balance out the requests by the value of the items, which you will know after having everything appraised.  This is a time of raw emotions. If items are given away that have sentimental value to a family member, it can cause hard feelings that could last a life time, sad to say.
  8. Hire physical labor or recruit younger family members.  If you are not local to your parent’s home, ask your Realtor to coordinate.  The job will be far more daunting than you think.  As you start pulling belongings out of closets, attics and basements, you will be stunned by the sheer volume of stuff.
  9. Be thorough!  In helping clients clear out their homes, my team has found jewelry in the pockets of coats, money inside books.  Older people tend to hide their valuables in the most creative places.  You will need to go through everything before you donate to charity or toss it out.  Look at the underside of drawers, backs of mirrors, in things that are tucked away at the back of closets.
  10. Unless your parents have designer clothes or vintage (before 1960) do not add to your workload by trying to sell them off.  Your time is worth more than used clothing could fetch.  Just donate to a worthy cause – but check all the pockets and inside pocket books first!!
  11. Sell furniture that is not valuable enough to interest an antique shop on Craigslist, via a Yard Sale, etc.  Be realistic.  Unless it is hundreds of years old, used furniture has very little value these days.  Same goes for China and stemware.  These have fallen out of fashion and it is very difficult to sell them in any forum.  Sometimes it is even difficult to give them away.  Some charities will only take it if it is modern enough to sell in their thrift shop.
  12. Consider asking the neighbors in to see if they want any of the stuff going to charity.  They may also have fond memories of your parent and may want to keep a memento.  And this way, you get some of the stuff carted away for you.  In some towns, you can even put items on the curb and people driving by will pick it up.
  13. I am a big believer in everything finding a home rather than winding up in a landfill.  If getting items to charities that can benefit from them is important to you, consider hiring high school or college kids with a driver’s license to drive the stuff to the charities for you.  Not all charities take everything.  And unfortunately, charities often don’t pick up.  Those that do can rarely accommodate the timeline you need to be on.  My team has driven books to the library (after checking with a book reseller for value), senior healthcare gear (walkers, etc.) to the senior center and clothes to the many charities that take them.
  14. Consider renting a dumpster.  This gives you the opportunity to look at each item you consider junk as you are tossing it.  It also helps you to clear out attics, basements and garages so you can see what remains that could potentially be valuable.  For about $500, you can typically keep a dumpster for a couple of weeks.
  15. Bring in a liquidator. This is someone who will clear out whatever’s left after you’ve decided what to keep, sell, give away or junk. Before hiring someone, however, you must comparison shop.  Some will charge you a fee, some will do it for free in exchange for keeping the stuff to sell what they can.
  16. Even liquidators may not take hazardous materials (fertilizer, chemicals, etc.) or may charge a high fee for doing so because they have to pay dumping fees.  Check with your local town hall to see if they have a drop off depot for these items. Do this early so you have time to properly dispose of these items.
  17. You will feel sentimental about many things as you are clearing out your parents’ possessions, but be wise and do not extend that sentimentality to giving the listing to a family friend who has never sold a house in the town your parents’ home is in.  I saw a listing (not mine, thank goodness) sell for $100,000 under market value because the family gave the listing to a family friend.  Not only did he not know the local market or have much selling experience, but when the family could not bear to make any changes to the house and left it just as it was when mom passed, he did not have the objectivity to tell them what they needed to hear – that the greeting cards she had decoupaged to the walls needed to come down, the carpeting needed to come up and the knick knacks had to go.   Ask yourself if the relationship with that family friend is worth tens of thousands to the family, because that is likely what you will be giving away.
  18. The same goes for selling to a family member or family friend.  My own mother, many years ago, sold my grandmother’s house to my cousin without checking with anyone, without consulting a Realtor (I was not a Realtor at the time) or an appraiser.  She sold that house at about half of its market value.  My mom was just too trusting and she wasn’t good at dealing with those big decisions during a time of stress.  More recently, I just sold a home in my market for $420,000 to a builder.  The house next door also sold to a builder who was a member of the seller’s family for $350,000 and that house was on a better lot.  Do my clients feel it was wise to hire a Realtor?  Yes they do.
  19. Take the advice of a Realtor experienced in estate sales before making any improvements to the home.  One of the biggest mistakes we see homeowners make is over-improving the home before putting it on the market.  While it makes the home show well, you are not likely to recoup all the money spent.   In some markets, builders are paying more for these homes than buyers who would occupy the home.  Since a builder will renovate or rebuild, any improvements would be a waste of money.   On the other hand, if your Realtor tells you reasonable improvements must be made to get top dollar, heed their advice.
  20. As much as you and the family may want to save money, I strongly suggest that you not try to do all the work yourself.  Your time is better spent taking care of your parent’s affairs.  There are plenty of resources available to cart out junk and charity items, to clean the house, to landscape the yard.  Odds are, you (and your siblings) have full-time jobs, families and your own houses to care for.  I have seen tensions rise when the children try to take all this work on themselves and all are not able to help equally because of distance or family obligations.

Contact Me if you are ready to talk about selling your parent’s home.

Me

Michelle J. Lane
Century 21 Commonwealth

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10 Things Baby Boomers Don’t Want you to Know

Baby BoomersI found this funny and useful article on Marketwatch.  Full article at http://www.marketwatch.com/story/10-things-boomers-wont-tell-you-2013-07-12 – good information for those wondering how your house fits into your retirement years.  Or for those of you who will be responsible for selling your parents’ home.

Why am I as a Realtor highlighting this article? As a boomer myself it was partially funny and partially scary.  But I am sharing because, for those of us, who will be woefully unprepared for retirement, our house is our greatest asset and so we need to consider how the equity will fill the gap in our retirement income.

1. Leaving Money to Our Kids is not a Priority.

2. Make Room Kids, We’re Moving in With You When we are Old. 

This is the one that is relevant to Real Estate.  Estimates are that most Baby Boomers have saved less than half what they will need for retirement. And that medical costs could run the average Boomer $300K in their retirement years – that’s what will not be covered by Medicaid.  So it is super important to think about how your home figures into the equation.  For most of us, it is the biggest asset we have.

Medicare provides healthcare coverage for citizens over 65 (mostly).  It comes as a surprise to many retirees that Medicare does not does not cover nursing home costs.   In order to qualify for Medicaid, the recipient must be poor, which means you have to spend down all of your assets on the nursing home costs before you would qualify for Medicaid.

In the Boston area, these costs can easily run $10,000 a month, so for most people, it would not take long to run through your life savings.   At that point, Medicaid would take over.  But your house is still considered an asset and the Estate Recovery Act dictates that upon the death of the Medicaid recipient, the house be sold and the assets used to pay back what is owed to Medicaid.  So when you think you are leaving the house to the children, you are not.  You are leaving them a headache. as they have to deal with Medicaid and sell the home to pay back the debt.

What are the ways out of this?  One is to transfer the home to your heirs through a trust – at least 5 years before you believe you would be going into a nursing home.  Of course, you had better trust those heirs to do right by you.  But, then again, if you really will wind up living with them in retirement, it seems a fair trade.

The other option is to sell the house while you are relatively young, rent or buy a smaller home, invest the money and spend it to enjoy your retirement years. Then let Medicaid take over when those things run out. (Kids, see Things we Don’t Want You to Know #1).

You could buy Long Term Care insurance to cover nursing home costs.  Nowadays, the policies only cover 3 years of nursing home costs.  Don’t get me wrong – 3 years is helpful.  They cover that length of time because it is the average nursing home stay.   But should you have Alzheimer’s, you could spend a decade or more under nursing care.  That will certainly wipe out all assets.

Of course, you should sit down with an estate attorney and a financial planner before you make any decisions to sell or transfer your home.  What I am suggesting is that you do it sooner rather than later.  Once you or your parents, (if you are doing the planning for them), need a nursing home, it is too late to plan.  If you need recommendations, feel free to ask me.

3. …..and we Blame you for it (those damn college costs).

4. We can’t face reality (about what our health will be like in retirement).

This may play a big part in why we do not plan enough for medical costs.  And given things we don’t want you to know # 6,7,8 we WILL have medical costs.  And we will go a long stretch with those medical costs due to the wonders of medicine and pharmaceuticals that keeps up limping along with chronic conditions for many more years than our grandparents would have had.

5. Till death do us part doesn’t apply to us.

6. We’re Unhappy.

7. And we Eat our Feelings.

8. And we’re Addicts.

9. We will bury you in Debt.

10. We’re obsessed with Not Aging

I don’t mean to be depressing with this article.  The moral is PLAN, PLAN, PLAN and your retirement years will be much happier – for you and your children!

 

Want to talk about selling your home? Feel free to contact me.

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Michelle J. Lane

   Michelle J. Lane
   Century 21 Commonwealth
   Email Me
   CELL: 617 584-3904
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How Boomers will Change Housing Market

   By Michelle J. Lane

 

 

The article below, supplied by MSN real estate, outlines how the aging of baby boomers will change the real estate market.  I read a very prophetic article about 20 years ago that predicted a glut of large houses by the year 2020 because 20% of the population would be 65 or older by then.   Makes sense when you calculate that the last of the boomers would be about 65 in 2020.  I wish I could remember who wrote that article and give him credit.   He could not have known that we would be hit by this very hard recession, but he accurately stated that our children would not be able to afford to buy our houses or even maintain them if they are left to them as part of an estate.

Out of the 135 houses on the market today (October 2012), 50% are  over $1M.  This time last year, it was 37%.  It is already happening!!!!!

In short – baby boomers will be healthier longer and live longer, so they are not moving to nursing homes or senior housing communities until later in life and will stay in houses longer.  Either staying in their current homes, moving to cities or campus towns, or living with their children (more likely, their children will live with them).

What this will mean for the real estate community is that the number of large, expensive houses on the market will continue to grow, condos closer to town centers or in the city will be in high demand – particularly ones that are on one level or have a first floor master and rentals will in higher demand.

It also means that baby boomers will need to work longer and/or make their money last longer.  In all fairness, many will want to work longer.  When social security was put in place, the life expectancy was 65.  It is now 79!  So what this tells me is that if you were born before 1965 you should seriously consider selling your big house now or make sure your children can afford it if you leave it to them as part of your estate.

The MSN article………..

By Bruce Kennedy
The demographics on aging in America are literally a gray area. The number of people age 65 and older in the U.S. is expected to rise to an unprecedented 55 million by 2020 — up 36% from 2010. By the end of this decade, nearly 40 million baby boomers — those born between 1946 and 1964 — will turn 65.

According to a new study by the Urban Land Institute, those so-called leading-edge boomers, the ones born between 1946 and 1956, will not act like prior generations as they approach the golden years. In fact, they’ll probably blow a hole through the way we look at retirement, housing and the elderly.

John McIlwain, the ULI study’s author, divides people over age 65 into three waves: the World War II-era “greatest” generation, the “silent” generation (ages 67 to 85) and the leading-edge boomers. These three groups, he says, will live longer than any generation before them, with many living past age 90 and even 100.

One of the biggest challenges facing this new breed of seniors, he notes, is that few will have the financial resources to support themselves through a longer retirement. “That’s going to put a demand on federal resources, as well as family resources and charitable resources,” he said in an interview. At the same time, people under age 35 are going through some of the hardest economic times since the Great Depression and will have to compete with their elders for limited resources.

McIlwain says this demographic change will have a major impact on the U.S. housing market. The leading-edge boomers are expected to be more healthy, active and independent — which means many will want to remain in their current homes. And those who do move, he says, will be looking for urban locations with smaller and easier-to-maintain housing where they can be close to friends, families, work, transportation and social amenities.

This change could lead to a decline for the estimated 50,000 housing communities across the U.S. providing nursing care for seniors. The recent economic downturn has made those facilities too costly for many families. And given that the average age of someone living in a senior facility is 84, such communities are having difficulty finding new residents.

How will the housing sector change in response? The ULI report says many of today’s seniors and baby boomers are creating new niche housing markets, including multigenerational living, which is rising at a faster rate than overall household growth in the U.S., as well as group living communities. College towns, which allow seniors to enjoy campus activities while being near children and grandchildren, are also expected to see more older residents.

Will Property Prices Need a Crutch as the Population Ages?

Or Do the Echo Boomers Offer an Elixir of Youth?

By Mark Heschmeyer

There has been much speculation that single-family housing prices could take a hit as increasing numbers of baby boomers downsize and leave larger homes behind as they move into retirement age. That assumption is too general to be entirely accurate, according a pair of major economic papers on the topic of aging and property prices.

What is clear is that this ongoing population shift holds important ramifications for the multifamily property sector, including senior and assisted living facilities.

“As Baby Boomers enter retirement age, many ’empty nesters’ may downsize, leaving their current homes in favor of smaller condos or age-restricted communities. Therefore, prices for large single-family homes located in high property tax areas could be under pressure over the next decade. “However, seniors today are often healthier and live longer; because of this we believe it is still premature to invest in assisted living or nursing homes.”

In terms of locations, we do not expect all seniors to relocate to Sun Belt cities. In fact, many seniors prefer to live near their children and grandchildren and to remain close to their lifelong friends.

John Rosenfeld, general counsel for Oxford Investment Partners in Phoenix, said that shifting single-family dynamic of baby boomers has been disrupted by the Great Recession and that has already helped boost the multifamily sector.

“Despite the popularity of various retirement investment vehicles, the largest part of most baby boomers’ nest egg is still their homes. Converting those real estate nest eggs into retirement cash could pose the prospect of a “correction” as the baby boomers become a sellers’ demographic,” according to Rosenfeld.

“The timing and severity of the Great Recession has interrupted this dynamic,” Rosenfeld said. “First, home devaluations of 30% or more over the past five years have depleted home equity, making it undesirable-even unfeasible-to sell in the current market.  We’ve seen this cause some retirees to describe themselves as “stuck” in their homes.”

“What this has done is temporarily push back the onset of the disposition trend for baby boomers and made that trend more dependent upon the dynamics of the residential market than the age of the boomers,” Rosenfeld said.

Rethinking Retirement

A second effect is more lingering,  The Great Recession has caused many baby boomers to rethink their retirement plans. Boomers not only lost significant home equity, but also had to dip into more liquid retirement savings. Many baby boomers suffered layoffs and significant reductions in household income during what should have been their prime earning years. The downturn has flattened and skewed the earnings curve for many boomers, causing them to push back their retirement date or ratchet down their expectations.

So boomers may be inclined to stay in their family homes for longer since they will be working longer. This could elongate the residential disposition timeline for the boomer generation overall, but result in a better fit with absorption.

Third, the Great Recession has caused an uptick in the residential rental market. This may have a mixed effect on housing values as baby boomers enter retirement. Today many people are not only renters of necessity, but by choice. That’s a reversal of a mindset that dates back to the early 20th Century, if not before.

What we are facing is a Lost Generation of homeowners, who would normally be buying the larger homes that the baby boomers are selling (or try to sell). Now we have a gentrified group of new baby boomers who worked hard for what they have and are suddenly facing the untenable situation of staying put in their ’empty nest’ homes, without being able to tap the hard earned equity that would have contributed to an easier lifestyle.

The underwater homeowners must stay put, must continue to work to keep what they have, and worse, cannot afford any health issues, as the cash reserve cushions are no longer available.  It is a truly scary situation for those experiencing it. Estimates are over 19 million people are in the same situation, with no solution in sight.

As far as senior living home prices, and retirement communities, these prices have been frozen in time as there are less and less qualified buyers, less people in the market without homes to sell , and all the while the safety cushion of retirement is plugged up.

What About the Echo Boomers?

Between 1945 and 1964 a total of 76 million to 79 million people were born. Now the children of the baby boomers qualify as an even larger demographic group. From roughly 1980 to 2000, 80 million or so echo boomers — Generation Y, Generation X, Generation Next, or whatever you want to call it – were born.

Scott Ostlund, principal and president of Ostlund Equities, which owns and rents single-family homes in throughout Nevada, Arizona and California, foresees demand for properties being shed by downsizing baby boomers being fueled by the echo boomer home buyers. As a result he claims the impact on single-family housing prices will be minimal or could even continue to drive property prices. Ostlund is also principal and senior vice president of Lee & Associates in Ontario, CA.

“Yes there is a big population of people shifting out of housing but the population of people buying houses is also growing,” Ostlund said. “There won’t be an oversupply. There are more people to buy properties and there hasn’t been any measurable new homes built in the last five years.”

“So how much of a degree does the shifting population demographics affect property pricing,” Ostlund asked. “It’s way way down the list,” he answered.

Pete Chinnock, senior associate with Penn-Florida Cos. in Boca Raton, FL, said he too thinks the echo boom will mitigate the impact of aging baby boomers.

“In my opinion it’s a very simple answer. It’s as easy as Accounting 101, “Supply and Demand,'” Chinnock said. “We go through one of these economic cycles every seven to 10 years and real estate prices are always affected negatively and then positively. They always seem to come out the other side and peak higher than the previous peak.”

“The demand for single-family home ownership will always be a goal regardless of age and as long as the combination of internal birth rate and immigration continue to create increases in the population the demand for housing will continue to increase,” Chinnock said. “The only variable I see is the type of housing required, based on age, health care needs and economic ability, will shift between single-family, multifamily, senior housing and assisted living due to population demographics, and prices will follow the supply/demand curve for each.”

More About Credit Markets than Age Demographics

And there is economic theory to support Ostlund’s and Chinnock’s views that shifting population is not the most significant factor that will drive future property prices.

What made housing vulnerable to a bubble? And why has the housing market been so impervious to attempts at resuscitation?

Housing is unusually susceptible to booms and busts because simply because of credit conditions, according to Adam J. Levitin, professor of law at Georgetown University, and Susan M. Wachter, professor of real estate and finance at Wharton Business School at the University of Pennsylvania, in a current working economics paper entitled Why Housing?

“Housing market distress transmits to the macroeconomy through a balance sheet channel, a construction channel, and a collateral channel,” the two argue. “Because housing is credit-backed and such a large asset class, failure will impact the financial system itself and pull down the economy as a whole. The dual-use of housing, its ubiquity on consumer balance sheets, its highly correlated pricing, and its linkage to the macroeconomy make it a particularly painful type of asset bubble to deflate.”

In their working paper released this month, the two argue that when the baby boomers joined the workforce and started saving, money supply and property prices entered a rising trajectory.

“We conclude that demography was the long-run driver of this process, basing our argument on data from 22 advanced economies for the 1950-2010 period,” the two concluded. “According to our lifecycle model, large working-age populations saved for their old age by investing in property and broad money instruments, such as deposits. In the past, savings activity by baby boomers drove up property prices and also increased demand for money. As baby boomers retire, these dynamics will go into reverse.”

 

Ah! Youth

Yet another wrinkle to factor into this complex equation was put forth by Mark Russell, is the City Assessor for the City of Yonkers, NY. Just because there is an echo boom coming into its prime earning years, doesn’t necessarily mean they are as interested or in financial position to strive for their parents’ dream of homeownership.

“We have seniors that need to down size their homes or acquire a (single-level) apartment… and they will be unloading their homes in record numbers. But who will buy these homes?” Russell asks. “With oversupply, there has to be a reduction in price especially with gun shy young people that do not even know if their jobs are secure. Also a young person may want to maintain the flexibility of being able to relocate without the burden of unloading a home.”

“So you have an upcoming glut… due to downsizing, young people with less income and desire to be locked into anything for 15 to 30 years, and increasing requirements for down payments,” Russell said.

All signs point to long-term reductions in housing prices and ownership, and a more rapid increase in rental costs, Russell said.

Not so fast, adds Diane J. Macunovich, professor of economics at the University of Redlands in California. She suggests all the fuss over an aging population may be focused on the wrong age group. According Macunovich, what we should be worried about are the gaps in the youth populations that may trigger future recessions.

In her paper, The Role of Demographics in Precipitating Crises in Financial Institutions, more than 70% of major declines in the proportion of 15-to-24-year-olds in the population have been associated with declines in GDP growth, according to her study of worldwide data from 1960 through 2005.

“A boom in the population of young people seems to boost producers’ expectations,” Macunovich argues. Unfortunately, those producers fail to cut-back when the boom abates, “and the passing of the bubble causes defaults and bankruptcies, which prompt foreign investors to withdraw funds and speculators to unload the local currency.”

“This appears to have been the pattern in four financial crises since 1980, as well as Japan’s “lost decade,'” Macunovich argues.

Meanwhile, Clarion Partners’ Tim Wang sees several economic factors affecting this key age group that is and will continue to drive demand in the multifamily market.

“Multifamily properties primarily serve renters age 20-34. This demographic cohort is expected to increase substantially as Echo Boomers graduate from college. Most of them will not and cannot afford to buy homes. Tightened lending requirements, the flexibility of renting, large student loan debt, and the trend for young people to postpone marriage and start a family all affect decision making to the clear benefit of the rental property market,” Wang said. “Therefore, we believe that the demand for multifamily rentals is likely to remain strong over the next several years.”



 

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