Lessons from the Pros

Featured Article

The Impact on Housing of the Aging Baby Boomers and Echo Boomers – Part II

I want to start with this quote, not because it directly relates to this topic but it rings so true to me I wanted to share it.

“Real estate is at the core of almost every business, and it’s certainly at the core of most people’s wealth. In order to build your wealth and improve your business smarts, you need to know about real estate.” ~ Donald Trump, Think Like a Billionaire ~

A great deal of the research used for this article came from a white paper published by The Bipartisan Policy Center.  The authors are from The Urban Institute, USC and National Association of Realtors.  The paper is called Demographic Challenges and Opportunities for the U.S. Housing Markets. Although many different demographics were looked at when writing the paper, it is clear that the next two decades will be most strongly impacted by the growth of the 65+ population and the Echo Boomers.

In part one of this series, we ended by looking at the stats of the aging population and Echo Boomers, but how do those stats translate into opportunities?

A large majority of older Americans want to remain in their homes, and more importantly, in their communities.  The homes they raised their families in might not suit their purposes any longer, so what are their options?  In 2005 (before the housing crises) a survey was taken by AARP of adults over the age of 50, and they reported that the homes they currently lived in wouldn’t accommodate them “very well” as they aged. So these seniors have a push-pull of wanting to “age in place” but their homes aren’t suitable for them to remain independent.

Seniors in the early stage of making a housing transition will remain in owner-occupied or rental housing and live independently.  Only about 4.7 percent live in a group home and 7-10 percent live in a senior facility.

I see group homes as an area of opportunity.  Group homes could become the answer for many seniors. I have been preaching for the last year or two that new homeowners aren’t looking for McMansions.  New buyers (Echo Boomers and younger) want something simpler that gives them more flexibility.  So what will happen to these McMansions? Group homes could be perfect. Many of these homes were built with private baths attached to each bedroom, large kitchens and great rooms. These homes can be adapted for disabilities by adding lifts and rails in bathrooms, for example. Then these homes can operate very well as group homes. This can give seniors the option to stay within their community, but not be isolated. Not to mention it’s a cash cow for investors, I’ve seen these kind of properties create a 100% positive cash flow (this would include covering the debt service).

As seniors make the inevitable change they will release much more housing than they absorb, but it will be absorbed by newly formed households.  For example, between 2000 and 2010, people who began the decade age 55+ moved out of 10.5 million housing units.  Most of these were owner-occupied dwellings.  During the same period households grew (under the age of 55) by 21.8 million.  Thus leaving about 11.2 million new households  needing housing.  Take into consideration that forty percent of this time was during a major recession where we saw much slower household formation.

What does the next decade look like?  Remember these are just projections and the economic recovery can have a large impact on these numbers, but it’s estimated that seniors will release a net of 10.6-11.3 million housing units and 14.4-15.0 million housing units between 2020 and 2030.  Of these releases it’s estimated that 80 percent will be single family detached dwellings.

In part III we’ll look at how the Echo Boomers are impacting the market and some more suggestions for where to look for opportunity as investors.

For our friends in the US, have a safe and joy-filled 4th of July!

Diana D. Hill


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

Join over 170,000 Lessons from the Pros readers. Get new articles delivered to your inbox weekly.