Baby Boomers, the massive generation born between 1946 and 1964, and their elders have an enormous housing market footprint. Collectively, these older adults inhabit 46M owner-occupied homes worth an estimated $13.5T.
Departures of these older adults from the homeownership market (leaving for rentals, senior care facilities, or by reason of death) will accelerate in coming years as Baby Boomers continue to age. With the oldest Boomers now in their early 70s, the beginning of a mass homeownership exodus looms on the horizon, fueling fears of a ‘generational housing bubble’ in which homeownership demand from younger generations is insufficient to fill the void left by multitudes of departing older owners.
But how can we predict when this wave of departures will begin and forecast the pace at which it will unfold over coming decades? A new Housing Insights from the University of Southern California and Fannie Mae’s Economic & Strategic Research Group answers this question by analyzing attrition of past generations of older homeowners and using the findings to project the future cadence of aging-related homeownership exits.
Steady Trends of the Past Provide a Foundation for Predicting the Future
To develop a basis for our projections of older homeowner exits, we first analyze historical homeownership retention rates for cohorts of owner-occupants as they advanced through their elderly years over the last few decades. The cohort homeownership retention rate is the ratio of the number of homeowners in a birth cohort at the end of a period to the number of owners in the same cohort at the beginning of the period. A retention rate greater than 1.0 indicates that the number of homeowners in a cohort increased as it aged; a value less than 1.0 indicates that the number of homeowners declined with aging.
This also reveals that cohort homeownership retention rates were either stable or rising steadily across recent decades for the oldest cohort age transitions. Retention rates for cohorts aging from 55-64 to 65-74 ranged only from 0.92 to 0.95 across recent decades. Retention rates for cohorts passing through the oldest age groups have increased steadily in recent decades regardless of the economic and housing climate, from 0.67 to 0.75 for those aging between 65-74 and 75-84, and from 0.26 to 0.31 for those aging to 85 and older.
Aging Baby Boomers Will Trigger a Growing Exodus of Older Homeowners
The stability of recent trends in cohort homeownership retention rates for older adults provides a solid foundation for predicting exits of older homeowners in coming decades. We use the 10-year cohort homeownership retention rates observed since 1980 to create two projection scenarios for the number of older adults exiting homeownership over the coming two decades. In the first scenario, we assume that retention rates for homeowners aging into the 75-84 and 85+ categories will continue to rise gradually at the same average pace as observed between 1980 and 2010. In the second scenario, we hold retention rates for homeowners aging into the 75-84 and 85+ categories constant at the average value observed across all four historical decades. Because retention rates for those aging from 55-64 to 65-74 have been relatively constant across recent decades, we use average historical retention rates for this age transition in both projection scenarios. We apply the homeowner retention rates for each scenario to the distribution of homeowners by age in 2016 to produce two alternative projections of the number of older adults exiting homeownership over the next two decades.
**excerpts from article by Dowell Meyers and Patrick Simmons for Fannie Mae. Part II will appear next week. Via Economic Focus**