Boomers, Housing and Retirement:
A Symbiotic Relationship Unravels
By Mark Miller

Housing Market Crisis (William Brown)

The housing market is showing some tentative signs of recovery.

But if you're a baby boomer relying on housing wealth to help fund retirement, don't hold your breath.

True, the most recent Standard and Poor's / Case-Shiller home price index showed that U.S. home prices rose in May on a month-to-month basis for the first time since July 2006. But that shouldn't be taken as a sign that the market is going to rebound to pre-crash levels anytime soon.

At best, the Case-Shiller index hints that we may have found a bottom in housing. Maybe.

Housing's direction is no small matter for the baby boom generation now approaching retirement.

When the housing market was soaring, many baby boomers thought of their homes as piggy banks that could be cracked open to finance retirement.

High housing prices would allow us to leverage equity to finance our lifestyles, buy second homes or pay entry fees into retirement communities. That thinking was encouraged by the financial services industry, which aggressively marketed low-interest mortgage debt and equity-to-cash products like home equity loans and reverse mortgages.

But the piggy bank was smashed when the housing market crashed.

To be sure, the housing debacle has been painful for every American demographic group. But older Americans have the greatest exposure to real estate. Consider:

Seventy-nine percent of Americans over age 55 own their own homes, compared with a national median ownership rate of 69 percent As prices soared during the bubble era, boomers took on larger mortgages, and a greater percentage are now carrying mortgage debt well into their 60s than ever before.

Home equity accounts for one-third to half of all net worth for older Americans

The only larger source of household wealth is Social Security. Despite all the buzz about the stock market's crash, housing actually impacts a much larger group of Americans, simply because home ownership is spread much more evenly across income groups than equity investments.

Thirty percent of Americans age 45 to 54 are underwater on their mortgages

According to one study, they owe more than their homes are worth, and would need to bring cash to a closing.

Warning signs were flashing in the housing market well ahead of the crash, due to basic laws of supply and demand.

Baby boomers have been a key driver of housing demand over the past several decades due to our generation's extraordinary size. Now, we constitute an enormous group of potential home sellers as we age and begin to sell homes in order to downsize or move.

But boomers need to sell to a smaller, less affluent pool of buyers.

"The most important factor that pushes prices up is when you have more buyers than sellers," says Dowell Myers, a professor of urban planning and demography at the University of Southern California. Myers has been pointing to a huge sea change in the ratio of buyers and sellers that will put downward pressure on housing values over the next two decades.

"The baby boom generation has pushed up housing prices over the past three decades, as they steadily moved up the ladder and bought housing. So people think the last three decades are normal. But at some point boomers will start to cash out."

Myers thinks the buy-sell ratios could be improved if the rate of immigration to the U.S. were to increase significantly, creating greater demand for housing.

Likewise, echo boomers -- the children of baby boomers -- could have a positive impact as they come into their prime home buying years -- if housing becomes sufficiently affordable.

While prices have been plunging, the affordability gap remains sizeable, because median incomes of first-time homebuyers have been in a long-term, secular fall, dropping 15 percent since 1976. Before the crash, buying power was propped up by liberal bank lending policies that have now largely been curbed.

That means echo boomers and immigrants aren't likely to ride to the rescue of housing without a general pick-up in the economy -- and even then, prices aren't likely to recover to pre-crash levels.

 

 

After the Housing Crisis
By Ilyce Glink

Much has changed in the world of real estate over the past 18 months -- new tax credits, tax deductions, and tax laws relating to short sales and foreclosures. New rules relating to appraisals, mortgages and home equity loans. And there are new entities to oversee and manage the crisis. Despite these changes, some key parts of the home buying process haven't changed at all. Here is a list of things that have remained constant through the tumult ...

Paying Off the Mortgage: Readers Tell Their Stories
By Ilyce Glink

One of the big topics of conversation is figuring out when refinancing or prepaying your mortgage makes sense.

Reverse Mortgages Don't Allow You to Borrow 100 Percent of Home Value
by Ilyce Glink - Real Estate Matters

A reverse mortgage allows homeowners over the age of 62 to tap into their home equity. You can either take the money in a lump sum, as a line of credit (which it sounds like your husband opted to do), monthly payments, or a combination of all three.

Ask the Real Estate Lawyer - June 21, 2009
By Ilyce Glink and Samuel J. Tamkin

Ask the Real Estate Lawyer - June 14, 2009
By Ilyce Glink and Samuel J. Tamkin

Get a Job and Then Buy a House, Not Vice Versa
By Ilyce Glink

The fact that you're moving without a job is problematic if you intend to buy a house. If you quit your job and then try to close on a house, you may not be able to at the last moment. That would be a disaster for you and the sellers

 

Ilyce R. Glink's latest ebooks are "Save Your House From Foreclosure" and "The Clutter Collector: How to Get Rid of Clutter Everywhere In Your House," which are available at her Web site, www.thinkglink.com. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 am-1 pm EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022

 

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