Sunday, February 10, 2008

"Baby boomer bubble"

Seniors are more likely to sell their houses. Some move for retirement or want to be closer to their kids (many of whom moved to cheaper places). Some need the money, especially if pensions or Social Security fall short. Many others stay put until they die. Either way, the large numbers of the Baby Boom generation will have an impact on the housing market as they retire, supported by a new USC study. You should read the full Lew Sichelman syndicated column "A baby-boomer bubble is forecast" in today's LA Times. It begins:

The common perception among economists is that the current housing mess will be a relatively short-term affair that should see a return to normalcy within the next few years.

But, according to a new study by two USC researchers, problems of greater proportion lie just ahead. They call it the "generational housing bubble" and maintain that it will be fueled by the same baby boomers who have been bidding up prices since 1970 as they moved up the housing ladder.

Now, 78 million boomers are about to enter their twilight years when homeowners tend to become sellers rather than buyers. And as a result, the USC duo expects there will be "many more homes available for sale than there are buyers for them."

As the elderly become more numerous than the young, and shift into seller mode, the researchers postulate, the market imbalance could come quickly around 2011, causing housing prices to fall.
And concludes:
Historically, seniors don't become net sellers in Arizona, Florida and Nevada until they reach 75. But the opposite is true in 13 other states -- Alaska, California, Connecticut, Illinois, Indiana, New Jersey, New York, Maryland, Massachusetts, Michigan, Minnesota, Ohio and Rhode Island. In those states, the crossover starts at age 55.

On a similar subject, I was struck by Neil's ("Got popcorn?") post about his company quietly shifting jobs out of state.

30 comments:

Anonymous said...

This story is a good example of how Westside Bubble often doesn't connect the dots between macro economic stories and the local implications. Lots of stories that hint about doom and gloom, but very few about why we are better positioned to handle certain so called "bubbles" like this.

The westside probably will benefit from this overall, but not by that much. Sure, various retirees may sell their house, but that is gradual over time and unlikely to produce a glut of sellers at any one time. The city benefits significantly because propety tax will reset at the new market price, likely way above the prior amount. At the same time, retirees who used to have to live near work, will now be able to live where they want to assuming they can afford to do so. Many of those will want to live in our area. Should be a net positive, IMO. Whether they buy or rent I'm not sure about. Not saying that Leisure World Santa Monica is upon us, but people with money will want to live in nicer areas.

Anonymous said...

Absolutely - those with plenty of money who are not working will want to live in Santa Monica to enjoy all the amenities

The same phenomenon is true in manhattan - elderly people are flocking to manhattan -


let's be clear - only those old people with plenty of money will be able to afford SM

fortunately there are plenty of them!

Anonymous said...

On the other hand many people explain the gap between the cost of housing and local incomes by saying that many properties are completely owned by older people who made less while working but won't be affected by a market downturn and forced to sell. The thing is, many of these people are the kind that cash out of states like California and New York for cheaper areas to retire anyway. That's still the overall trend, and would create a marginal increase in supply though it might be offset locally by a small segment of very wealthy aging boomers moving into places like Santa Monica (This is certainly plausible though I'm not sure where they would be coming from). Do you, anons 1 and 2, have some basis for this other trend, either here or in New York as you say, anon 2?

Anonymous said...

Anon #1 here.

To Anon 8:27...

The income vs. housing pricing debate is pretty complicated no doubt. I believe too much is made out of median and average income, even though it is important. There is and will be many buyers of quality property in SM, even as things decrease. Things I see listed are either in buildings I wouldn't to live in, or overpriced for what they are. Good properties at reasonable prices still sell. The fun part is debating what is reasonable.

Story implies that retirees will vacate the state to AZ and FL, but think about how CA (and LA) will keep getting much more populated than today. Maybe the bears are right and we'll go down 25%. But I made decent money on my last place and expect to do so again on this place given my long term timeframe. Sellers moving out of town are what helped make Sacramento and Riverside overpriced. That's part of what also kept our prices where they were at, so their fall is a legit reason why we will decline.

What I am curious about is the elasticity between various elements. Will a plot of land in Ocean Park have greater depreciation (percentage wise) than a similar plot in 90402; How much more is the same condo worth 2 blks north and south of Wilshire; why is a 1br 900 sf condo worth 600+ if a 2 br 1500 sf condo in the same building is 800; why isn't the general appeal of the building and exact location being discussed more in terms of the value.

Anonymous said...

I don't have all the answers to your questions,

however the best overall framework to use is the book "the winner take all society"

Let's divide all the 60 year old plus people in to america in to two buckets.

the people with a net worth over 3 million and the people with a net worth under 3 million

the ones with net worth over 3 million often want to enjoy a pedestrian environment with plenty of world class restaurants. These folks are flooding in to manhattan right now, just do a google search and you will see dozens of articles on this

these same people with a net worth over 3 million can afford 90402 and it is logical to expect a continued inflow of them ( as we have seen the start of

obviously most of these seniors have a lower net worth and cant afford the 90402. Forget them

the key issue is for those with the bucks 90402 is a hell of a better place to live than arizona or some such

Anonymous said...

By the way, these over 60 people are particularly sensitive about crime


So all you bears on this board cheering for house prices to come down 40% should also be cheering for a big increase in crime

If we get a lot more gang banger murders in Santa Monica, it will help you get your wish for lower house prices. All over the USA there is a correlation between crime and house prices.

Part of the reason manhattan apartments are up four times in the past 15 years is due to plunge in crime

Anonymous said...

25% minimum

Richard Mason said...

As I've mentioned previously on this blog, 90402 is statistically a high-crime zip code. However, it might not be commonly perceived that way (?), and perception rather than reality would govern whether people move in or out.

I notice some of the anonymous cowards are saying, "Wealthy old people will want to move to Santa Monica," which is somewhat plausible, and some are saying, "Wealthy old people will want to move to 90402," which I think is much more unlikely. Retirees (even wealthy ones) don't need four bedrooms and don't need good school districts. If what they want is a "pedestrian environment with world-class restaurants," they'd be better off closer to downtown and the beach.

Anonymous said...

Richard
i agree w you completely
old people wont want n of montana

however i think the condos between wilshire and montana will be much more appealing to them than anything south of wilshire

i mean, wilshire from the ocean up to around tenth street has visible homeless presence

on the other hand, montana has no visible homeless presence

i therefore see seniors wanting to spend their time walking montana rather than walking other streets in sm

by the way you say 90402 is statistically high crime what do you mean by that - property crime or violent crime

Pat said...

Redfin has a neighborhood comparison page that includes crime. You can enter 90402 vs. 90266 or 90274. 90402 has much higher petty and violent crime.

Anonymous said...

wow

that is very helpful

90403 is way safer than 90402
according to this

is this true or just a statistical anomaly??/

Anonymous said...

After any post on this blog, comes a housing cheerleader response about how different it is in SM. How foreigners, rich folk and wealthy retirees will prevent housing prices from falling.

Demographics already show people are moving out of LA as well as Riverside. It is too expensive here for most people. Not just middle or lower class. Nearly evryone is priced out of SM with any kind of rational lending.

As for retirees, $3M is not enough to retire in SM at today's prices. There are simply not enough people with so much more money to set the marginal prices. Where are the retirees selling that will allow them to absorb higher housing costs in SM? They weren't doing it 5 years ago, and no magic has changed it.

One other thought, retirees often like to live near family. Does living in SM sound as good, if one's children can't afford to live nearby because they have been "priced out forever"?

House prices have disconnected from reality and income (whether investment or wage income). There is no pet theory that can stem the losses in housing that are going to occur in all locales that experienced the bubble run-up.

Renting until the bottom. Let's compare notes in 2011.

AnonymousRenter

Anonymous said...

I agree with this last poster.

if you want to live near your family, you need a lot of dough to live in 90402 and have your family nearby

basically, let's say you are a married couple in your 50's with three kids who got out of college in the past few years - you want to live near them

ok your kids can probably afford to rent small places in the 90403 so you buy a house in the 90402 for four million

then your kids decide to get married and have kids - you want to be near your grandchildren and your kids probably can't afford houses in the 90402 themselves - so you buy them each a house in the 90402 - that is three houses at say 3.3 million a pop

so all in you are talking 14 million bucks for housing -
you get the benefit of a great lifestyle, good public schools for all your grandkids, everyone within walking distance of everyone else

If you have so much money that the 14 million doesn't mean much to you this is a great lifestyle and a totally rational one

If you don't have the 14 million, it is CRAZY for you ( the grandparents) to buy in the 90402 - if you can't buy your kids and grandkids homes they will live too far away from you

I guess i am saying i agree with the BEARS - very very few old people will move to the 90402 and therefore prices in the 90402 will go down

Anonymous said...

You're all talking about my situation almost exactly. I'm a 28 year old lawyer renting in Santa Monica. My dad is a doctor, from Pennsylvania, soon to retire, and would love to come to Santa Monica. He's also been somewhat frugal, and so has about $4 million in savings.

The problem: he's concluded he can't remotely afford Santa Monica. How is $4 million in retirement savings supposed to be enough for 90402 houses that are all $2 million plus? If he pays cash, that's a huge chunk out of retirement dividends he needs as replacement income. If he takes a mortgage, at 4% (the recommended retirement withdraw), he has $160,000 a year to play with. But I make $175,000 a year and can't remotely afford 90402... how can he?

The $3 million estimate for 90402 isn't even close... and walk around the area; with some exceptions, it doesn't seem to be populated by the super rich. You don't see $100,000 cars around in great number. The people walking around Montana aren't dressed like the people walking around Bel Air or the Palisades. They couldn't afford to buy there again either. The houses are nice, but they're not $2 million nice, and the one's that are list at $5-6 million, not $2M.

I'm thinking a real dollar decline of 50% in 90402 over the next decade. The super wealthy can plunk down millions elsewhere and get a lot more, and have much richer neighbors. The semi-wealthy can do the same. The only parallel for this bubble is Tokyo, and you should see what's happened to their land prices over the last 15 years...

dlp said...

NY TIMES
Katie Hafner
Denial can be a powerful psychological force.

According to a survey released earlier this week by Zillow.com, the real estate Website that calculates home values, denial is precisely what appears to be at work in the minds of many homeowners across the United States. They have managed to convince themselves that, despite ample evidence to the contrary, their homes actually increased in value in 2007, or remained the same.

According to the survey, conducted for Zillow.com by Harris Interactive, not only do 77 percent of homeowners from around the country believe the value of their home has increased or stayed the same, but 67 percent say they plan to make major home improvements this year. About a third of the respondents say they are likely to take out a home equity loan, or refinance their mortgage.

This in spite of a recent Merrill Lynch prediction that “housing prices will remain in free fall,” declining 15 percent in 2008 and 10 percent in 2009, “with more depreciation likely beyond the forecast period,” even if the Federal Reserve continues to cut interest rates.

Stan Humphries, Zillow.com’s vice president of data and analytics, said the results of the survey could be attributed to the fact that most Americans have yet to try selling their homes. “Most people are not really affected by declining values unless they absolutely must sell or need to immediately refinance or withdraw equity,” he said. “This has contributed to the healthy investment intent, particularly in home upgrades, despite the downward trending markets.”

Anonymous said...

I respect all the posts that have come before me.

I have to dispute the one writer who said

____
The super wealthy can plunk down millions elsewhere and get a lot more, and have much richer neighbors.
_____

I guess he was saying that if you can truly afford to spend $4million on a house why would you buy in 90402 where your neighbors do not look super rich, do not dress like super rich people, do not have the mannerisms of super rich people.

I think that is precisely the point. If you live in 90402 you don't have to dress a certain way or drive a certain car. Your kids don't grow up feeling "rich" the way they do in some other neighborhoods.

All the bears keep saying that 90402 doesn't have the same vibe as Beverly Hills or Bel Air.

Perhaps the ranks of the people with $4 million to spend on a house is diverse enough that many of them don't LIKE the vibe of Beverly Hills and Bel Air.

Perhaps there is a niche among people that can afford to live anywhere that choose the 90402 precisely for what that last poster laughs at

Anonymous said...

If you want to spend $4 million and be around snooty snobby people, spend the $4 million in Beverly Hills

if you want to spend $4 million and be around people who are more down to earth, wear faded t shirts, go to yoga and drive a prius, move to the 90402

it is a different culture, a different vibe. Who do you want to spend time with -

Anonymous said...

For everyone saying 90402, or the Westside generally, is just different, where is your evidence? Where do all of these people excited to spend $2 million on a 2 bedroom house on an eighth of an acre, so they can be next to Prius drivers, come from? What are their jobs, what is their age? Are they married, single? Why 90402 and not Pasadena or the beach cities or any of a dozen neighborhoods in the Bay Area that blow 90402 away for the rich granola types? Is it because that's who's in the 90402 right now? But who among those people could afford their own houses if they had to buy them again?

Anonymous said...

that's just the point

if you have four million and DONT want to live among rich ass*oles
you can move to the 90402. people are not rich in the 90402 you can hang out with granola liberal yoga types

all i am saying is that there is a real advantage to hanging out with the 90402 crowd instead of beverly hills crowd

Anonymous said...

The 90402 is mostly populated with people who are liberal and not rich. they moved there before you had to be rich to move there

so if you are rich and you want to live in a neighborhood that is filled with rich since it has been rich forever, go to Bev Hills

if you are rich and want to live among granola non rich liberal types, move to 90402

Westside Bubble said...

I feel 90402 is becoming more and more rich, new mansion by new mansion, now past the tipping point.

Good conversation, everyone!

For Anon 2/10 9:39, Will a plot of land in Ocean Park have greater depreciation (percentage wise) than a similar plot in 90402, I've felt there has been a pretty stable relationship between SM's different neighborhoods.

Now north of Montana lot value is around $2M, lower (not bottom) Sunset Park is over $1M, and low-end Ocean Park is below $1M.

In the mid-1980s make that around $300K, $200K, and over $100K, a similar relationship.

Anonymous said...

I agree that many mansions are going in to 90402

However, if there are 3000 houses in the walk streets of the 90402, I believe that fewer than 25% or 750 of those houses are occupied by truly rich people -

In my opinion 75% of the people in the 90402 bought in before house prices went way up and are NOT rich.

Just as importantly, the people in the 90402 generally don't act rich the way people in Bel Air do

Is there agreement on this board that people in 90402 walk streets generally don't act rich the way people in Bel Air do -

is there a difference in the vibe you get in the 90402 vs Bel Air

speak up

pvc said...

The vibe is different, but it's also changing and become more like those other areas. Santa Monica is losing it's laid-back, beachy atmosphere teardown-by-teardown. Some say it's good, some say it's bad - depends where you're sitting. But prices are what they are and that attracts certain types of buyers and for better or worse, it is changing. There was a time when the various shifting forces in neighborhood dymanics had created this affluent (but not too affluent), earthy, low-key vibe in Santa Monica, but I suspect you'll need to look elsewhere to find that ten years from now. Nothing stays the same forever.

Anonymous said...

I think PVC has nailed it.


North Santa Monica used to be VERY different from Beverly hills north of Wilshire.

The cars people drove, the clothes they wore, the values they had, all were VERY different than in Beverly hills

PVC points out that the new people moving in to the 90402 today are wealthier than the people who lived there in the past.
That is true. but i strongly dispute that these new people will act like people in Beverly Hills. I think that people with plenty of money to spend CHOOSE 90420 over Beverly Hills specifically cause they like the vibe of 90402

Similarly, they like the vibe of Montana Avenue better than the shopping streets in BH

From a wealth and income standpoint, the people moving in to BH today are the same as the ones moving in to BH but from a lifestyle perspective they are different - they pay homage to the old timers in the 90402 and do *not* drive a rolls, do *not* drive a bentley, do not dress up the way people in BH do. They may plunk down $5 mil for a house but they walk around in casual clothes and lead a casual lifestyle.

The 9002 will be different than BH - people move seeking different things

Anonymous said...

Apparently we have the least affordable homes in the nation, and by a wide margin.

http://findarticles.com/p/articles/
mi_m0EIN/is_2005_Jan_6/ai_n8684635

But I'm sure the Westside is different, especially 90402. There are just oodles and oodles of ultra wealthy people who want to live there because of the atmosphere on Montana. Not Manhattan Beach, not the Palisades, not Bel Air, not Beverly Hills, not Marina del Rey, not Palos Verdes... only the 90402 will do. It's so great that companies like Yahoo exist to supply this endless list of millionaires. I know the statistics say that even being in the top 1% of income isn't enough to afford a house in 90402 anymore, but what are statistics? I'm sure at least 20% of the people in Los Angeles are in the top 1% of income. More than enough to buy all the houses in all the desirable neighborhoods. Prices will only go up from here!

Anonymous said...

Anon, i agree with your sarcasm a billion jillion hwazillion percent.

You go girl!

pvc said...

The houses in the flats of BH SM to Sunset tend to be a lot larger than they are in SM, and quite frankley are more expensive, too. $5 million gets you a lower-end house in those areas, and prices have climbed well above $10m for the larger properties. Santa Monica has very limited supply of these $10m+ homes. Also, the hills of BH and Bel Air have estates on a scale not found in SM. Who knows what reality lurks on people's bank statments, but at least in terms of property values and visible wealth, BH and Bel Air are still ahead of SM. And yes, the vibe is different. I don't think SM will turn into a carbon copy of BH, but the vibe is changing because even a market demanding $3-5m for a house is going to filter out most buyers.

Anonymous said...

Everyone latching on to Bel Air vs. 90402 is fighting a straw man. I guess people like you are also why there are bear market rallies; you thrive on the narrow view.

It's easy to stay excited about 90402 if you just contrast it with one neighborhood from which it obviously differs. You really think the 90402 is the only area for rich people that don't like Bel Air, though? Why not the beach cities? Why not the Palisades? Why not Malibu? Why not Pasadena? There might be 3000 lefty rich people in LA to keep the 90402 afloat, but that assumes that no one rich and on the left has any interest in living anywhere but the 90402...

Santa Monica is my first choice, but trust me, I'm also looking elsewhere, and I'm sure I'm not alone.

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