Boomers Aren’t Budging From Big Homes

Many empty-nesters stay put rather than downsizing, keeping inventory tight

Baby boomers bought up many of the big homes across the U.S. when they were raising their families. Now they’re staying put, even though their kids are all grown up. Boomers are on top in a housing market where tight inventory, higher interest rates and steep prices are making homeownership less affordable for the average family.

Many of these older homeowners paid off their mortgages on properties that have appreciated tremendously in value. Some are happy with their big houses. Others would like to downsize, but are deterred by the same high costs that are restraining other prospective buyers on lower rungs of the housing economy.

Many are working longer or planning on an active retirement, and are in no rush to move to a retirement community. About 28% of all U.S. homes with three or more bedrooms are owned by people between the ages of 60 and 78 living by themselves or with another adult, according to a Redfin analysis of 2022 census data. Millennials living with children own just 14% of these bigger homes.

A recent Fannie Mae survey found that most Americans 60 and older don’t intend to ever move. Just a decade earlier, empty-nesters in the silent generation, who at the time were about 67 to 84, owned 16% of homes with three or more bedrooms. Meanwhile, members of Generation X with kids, who were 32 to 47, owned 19% of those large homes, Redfin found. Boomers own half of all of the $32 trillion in home equity in the U.S., according to a Redfin analysis of Federal Reserve data.

For years, some have predicted that boomers would start selling off their big houses en masse, flooding the market with properties. Instead, many aren’t budging, similar to younger homeowners who don’t want to give up their low-rate mortgages.

The problems, though, are deeper than boomers not moving. Home-building activity plummeted during the housing crisis and remained depressed for years, contributing to a historic decline in the construction of new homes and a housing shortage. A rapid run-up in interest rates over the past two years sent mortgage rates soaring.

And older homeowners downsizing in droves wouldn’t actually solve the overarching issue that there are not enough homes on the market. Instead, it would likely lead to more competition for smaller homes. The state of the housing market has left people on all ends of the housing spectrum unhappy. Renters can’t buy first homes, homeowners can’t trade up and older home- owners are disappointed their adult children can’t afford to live nearby.

That’s contributing to gloomy feelings about the economy at a time when many of the typical metrics, like unemployment, indicate that the U.S. is going strong. Mortgage rates, after falling late last year, are creeping back toward 7%, which promises to keep some would-be homeowners from being able to buy. Hotter-than-expected inflation data released Wednesday will likely prevent the Fed from cutting rates any time soon, which means mortgage rates will stay high, too.

Empty nests

Hanging onto their properties has helped boomers accumulate a level of wealth greater than any other living generation. Median prices of existing single-family homes have increased more than 10- fold since the early 1970s, when the oldest boomers were buying their first homes. Richard and Laurie Brooks have bought and sold some half-dozen properties over the past four decades, starting with a condo Richard bought when he was 24 for $122,000. The couple traded up to their current Westwood, Mass., home 22 years ago. They paid $1.5 million for the 5,000-square-foot, five-bedroom property because they liked the top-rated school district and family-oriented vibe.

The couple also have a Martha’s Vineyard home and rent an apartment in Boston to take advantage of the city’s restaurants and theaters. They estimate the Westwood home could sell for $2.5 million. They own both of their properties outright. Richard and Laurie say they have too much space in Westwood, but don’t like their other options.

They have effectively closed off the second and third stories except when their two daughters come to visit. When the couple moved in, every house in their small neighborhood held a young family. Now, half are emptynest boomers like them. “You would think our entire generation would have all moved out by now,” said Richard, a 64- year-old attorney. The Brooks’s daughter Sandy Kovacs, 33, would like to buy a home but feels she can’t afford one in Martha’s Vineyard, where she lives. She, her husband, Robert Kovacs, and their 2-year-old son reside in the guesthouse of her parents’ island property.

Sandy, a wedding planner, and her husband earned a combined $250,000 in 2023, but Robert was laid off from his tech job in January. The median home price in broader Dukes County is $1.8 million, according to Redfin. It’s not exactly what Sandy envisioned for her adulthood. Still, she doesn’t want to complain. “There are such benefits,” she said, “because we would never be able to afford something like this.”

Low rates

Even though families have struggled with inflation, U.S. household wealth has grown in recent years, helped by massive government stimulus measures during the pandemic and a still-hot job market. Boomers had a median net worth, defined as assets like homes minus liabilities like mortgages, of nearly $411,000 as of 2022, St. Louis Fed researchers found. That was higher than any other age group.

“The timing has been advantageous for this generation. They had access to and purchased a diverse range of assets at affordable prices,” said Lowell Ricketts, a data scientist for the St. Louis Fed who researches wealth. Nearly 80% of boomers own their primary residence and about a quarter own an investment property, the St. Louis Fed analysis found. More than half of them have retirement accounts like 401(k)s, with a median balance of $191,200.

About 27% own stocks and bonds outside of retirement accounts, with a median amount of $201,800. Boomers are much less likely than millennials to have credit-card debt or auto loans. Those with mortgages often locked in ultralow rates in the years that followed the 2008 financial crisis. Mark Aldridge, 63, grew up in a 900-square-foot home in Middletown, Ohio, when the town’s steel industry was still vibrant.

After studying finance in college, he started investing his and his parents’ money in the stock market. He paid $68,000 for his first home in Middletown in 1988. He traded up as prices rose, using the proceeds of each sale to fund the next. Eventually he moved to the Columbus suburbs, where he had four children and built a business as a financial adviser. In 2016, he and his wife, Komal Aldridge, who is a doctor, paid $535,000 for their biggest home yet, a five-bedroom with 4½ bathrooms spread over five split levels.

“I have a bigger basement than the entire house I grew up in,” Mark said. The Aldridges have paid off their mortgage. They are considering buying a somewhat smaller home in cash once their two youngest graduate from college. Home prices in the Columbus area are up 65% in the past five years, according to Redfin.

The couple aren’t sure exactly what they’ll decide. “I’ve read a lot of Warren Buffett. He lives in the same house he’s been in for decades,” Mark said. (Buffett, 93, has lived in his five-bedroom Omaha, Neb., house since 1958.)

Nowhere else to go

Many just don’t see a better alternative to their big homes. Smaller properties with amenities that might appeal to older homeowners, such as no stairs and close proximity to services, are scarce in many areas, said Jennifer Molinsky, director of the Housing an Aging Society program at Harvard’s Joint Center for Housing Studies.

The ones that do exist can be expensive, she said. People also have big financial incentives to stay put. More than half of boomers have no mortgage. That group pays a median $612 in monthly housing costs, which includes insurance and property taxes, the Redfin analysis found. These homeowners could, at least theoretically, sell and use the windfall to buy something else.

Those with mortgages face a different calculus: They would generally have to give up their cheap loans and borrow at today’s much higher rates to move. Homeowners whose properties have appreciated dramatically might also face a big capital-gains tax bill if they choose to sell.

Elaine Garrison would love to move from the Palm Beach Gardens, Fla., home where she and her husband, Rick Garrison, raised their two sons. “The house is too dang big,” said Elaine, 69. “I don’t need a formal dining and living room. I don’t need four bedrooms.” What she does need: a place without stairs that aggravate her lower back every time she uses them.

The couple’s primary mortgage costs $1,750 a month including taxes, interest and insurance. A second mortgage, which they took out 15 years ago to pay for living expenses, runs between $700 and $800 a month. Their home insurance is up steeply, from around $7,000 in 2020 to $11,000 this year.

Still, they believe they would have to pay more if they bought a smaller home in the area. The Garrisons have also looked into renting, but they found that it would run them about $4,000 a month. She might be able to buy something in another state, she said, “but I’m not doing that.”

Cash buyers

Still, boomers are often in a better position to buy than anyone else. They are much more likely to buy in cash, which blunts the effects of higher interest rates and gives them room to bid more in hot housing markets. Boomers made up 31% of home buyers, while millennials made up 38%, a 2023 National Association of Realtors survey found. Michael and Heather Sandifer, who are 73 and 77, have no plans to leave the threebedroom Greenwich, Conn., home they bought in 1992.

They love the place and figure that moving to an apartment or smaller house in the area would cost them much more. They owe about $170,000 on the property at a rate around 3%. Heather, a former textile designer, has taken over two of the bedrooms as studios for her botanical-focused art. The property is close to local walking trails and a train line to New York City. The Sandifers enjoy cooking together in the kitchen almost every day. “We’re kind of stuck where we are, but in a nice way,” said Michael. 

Sourse: WSJ

Filipinos now spending more on home redesign post-COVID

The coronavirus pandemic has prompted many Filipinos to redesign certain areas of their home.

The global coronavirus pandemic has forced Filipinos to rethink spaces and redesign certain areas of their home to make these more work-friendly.

Business establishments such as restaurants have also renovated their spaces so they can offer more immersive and multisensory experiences to customers while fostering human connection.

“The pandemic highlighted the need for adaptable living and working spaces that prioritized the health and safety of users,” Carla Mae Leonor, director of public relations at the Philippine Institute of Interior Designers, said in an interview.

“With this come solutions that ensure flexibility, incorporating movable partitions, multifunctional furniture and convertible rooms to accommodate changing needs, such as remote work and distance learning,” she added.

After being stuck at home for a long time, consumers are also seeking out experiences that can’t be replicated at home, the interior designer said.

“From immersive and multisensory dining to events and spaces that foster human connection, these brought about new hospitality spaces that provide bubble-type sanctuaries that provide resort-style amenities within a controlled space,” she said.

Some restaurants also offer dining experiences that include immersive and multi-sensory features that foster human connection, she added.

Architect Carlos Cham noted that in the first two years of the pandemic in 2020 and 2021, his company Cham-Candelaria, Inc., which specialized in restaurant and residential clients, did not have any building projects.

“All construction was put on hold for the first two years,” he said in an e-mail. “Construction only resumed, with very strict protocols, when the situation became lighter, and the vaccines started coming out.”

Philippine building activity declined by 28.5% at the height of the pandemic in 2020, but started recovering in the following year by posting growth of 31.4%, according to data from the local statistics agency.

Philippine construction had a market size of $65.2 billion (P3.7 trillion) in 2023 and it is expected to achieve an average annual growth rate of more than 7% from 2025 to 2028, according to a GlobalData report in March.

The government’s focus on infrastructure and energy development will support market expansion in real terms this year, it added.

“Fine-tuning every inch of Filipinos’ homes has become a way of cocooning to make their spaces enjoyable,” Ms. Leonor said.

They have come to adopt themes such as outdoor living, “feel-good” designs and hospitality industry-inspired interiors.

The kitchen has likewise been converted from a workspace into a living space, with more interiors attuned to hosting, she added.

‘RITUALS AND HABITS’

“At-home entertaining will remain a popular choice for cautious consumers,” Ms. Leonor said.

Other changes include improvements to workspaces at home due to the work-from-home or hybrid setup spawned by the pandemic.

“Improvised workspaces are being replaced with comfortable long-term solutions,” she said.

She also cited the rise of pet-friendly buildings. “Resilient in the face of the economic downturn, the pet economy will continue to thrive,” she said, noting that new themes in interior design include making more pet-friendly spaces.

Mr. Cham said having open-air spaces for both residential and commercial projects has become a standard requirement.

“Minimalist designs are sought after not only due to the clean aesthetics but also for their practicality and function,” the architect said.

His clients also prefer more natural light and ventilation. “People really learned to appreciate this.”

Ms. Leonor cited the rise of health-friendly materials in interior spaces.

“While personal standards for health and safety can be subjective, there are guidelines that are followed by licensed interior designers,” she pointed out.

One of these is the use of smart materials that deter or destroy bacteria. “Protective materials have become central to everyday living as hygiene and protection were ramped up in light of the coronavirus pandemic.”

Consumers also no longer just protect themselves through clothing but also with the finishes that they use within their spaces, she said.

While these have mostly been used by the healthcare sector, since the pandemic, sanitizing and microbe-fighting materials are making the jump to the commercial and residential sectors.

Mr. Cham said clients who want to cut costs still use traditional concrete hollow blocks or reinforced concrete. Those who want faster construction time have turned to steel or pre-cast.

“Cost and time will always be the main factors,” he said. “It still depends on how clients would want to have it.”

Ms. Leonor said Filipinos should future-proof their spaces against future health catastrophes.

“Rethinking how we look at value also puts our minds in the right place when we design our spaces,” she said. “Hiring licensed and professional designers, for example, can ensure the best solutions are explored and the needs of the space and the users are considered in the process of designing solutions.”

Interior designers are up to date with the latest technologies and innovations and know best how to meet the needs of a client, whether they require special treatment to ensure safety, well-being and comfort, she said.

She likewise noted that antimicrobial and antiviral finishes and technology coming into the market can now be used.

People should choose suppliers with sustainability credentials to “ensure synthetic and chemical compounds do not just end in landfills or leach into wastewater post-purchase,” she added.

One can also go local, thanks to efforts to create bio-based plant- and protein-derived fibers, textiles and materials “that create healthier alternatives and promote the use of locally designed and locally made products.”

“The rituals and habits built during the pandemic have affected the preferences and priorities of consumers,” Ms. Leonor said. The past years highlighted the relationship between humans and the environment, and this shifted the appreciation of users for well-designed spaces and objects.

“The spaces we inhabit are extensions of ourselves and are therefore worth investing in,” she said. This perspective will be carried on beyond the post-pandemic recovery and will push interior designers to develop ways to make people safer and healthier and their lives more enjoyable, she added.

“Design will always continue to grow and adapt to users’ behaviors and needs,” Mr. Cham said.

Source: Business World

US: Wait for a Housing Slowdown May Finally Be Over

The Federal Reserve may finally get the news it has been waiting for since it stopped raising interest rates last year.

A resurgence in consumer prices at the start of 2024 raised concerns that the last mile of the road back to the Fed’s 2% inflation target would be the most difficult.

Market participants concluded that inflation was “stuck” and pushed out their expectations for interest-rate cuts, at times entertaining the possibility of no cuts at all.

A key sticking point has been housing inflation, which is still running about 2.3 percentage points above its prepandemic pace. But April inflation data, along with leading indicators, suggest that progress on this front may be resuming.

That means the long-awaited moderation in housing inflation is probably back on track, which should be hugely reassuring to Fed policymakers. Housing carries a large weight in the key metrics for consumer inflation.

It makes up 34% of the consumer price index and 15% of the personal consumption expenditure price index, the Fed’s preferred gauge of consumer inflation. In both indexes, the weight reflects the rent paid by renters and a rental equivalent for homeowners.

The latter captures what a homeowner would pay if they were to rent their own home. Price changes are calculated from a large sample of apartment rents. Those costs have been on a wild ride over the past five years.

The pandemic radically transformed decisions about where to work and live. People wanted more and different types of living space. Many had the means to pay for it, thanks in part to fiscal support as well as a strong recovery out of the pandemic. The result was a historic surge in apartment rents in 2021 and 2022 that is still having ripple effects in official inflation statistics.

Meanwhile, the past few years have also seen a boom in apartment building. As a result, pressure on rent has abated. Most measures of rents charged on new leases—so-called market rents—stopped increasing at the end of 2022 and are now rising in line with or slower than their prepandemic pace. This slowdown in market rent increases has yet to fully show up in CPI, however.

Housing inflation in the CPI was 5.7% in April, compared with a prepandemic rate of about 3.3%. The disconnect is that the CPI tracks rents paid by all tenants (average rents) not just what landlords charge new tenants.

Over time, rents charged on lease renewals tend to converge to market rents, as landlords and their tenants renegotiate. The main reason official measures of housing inflation have remained elevated is because this convergence was still under way.

The transition to cooler rent dynamics in the CPI has taken longer than many people expected. Historically, measures of market rent lead official measures of housing inflation by about two to four quarters, suggesting that we should have seen more of a slowing by the end of 2023. Instead, increases in CPI housing indexes cooled notably in the first half of 2023 and since then have largely moved sideways.

This has led some market participants and policymakers to doubt their forecast for cooler housing inflation. There is every reason to think that we are close to a turning point.

For a period, renewing leases were still catching up to the pandemic surge in rents, but the majority of indicators show that average rent levels have now fully caught up to that surge. If the catch-up period is over, then the pace of increase in average rents should slow further in coming months.

The longer-than-usual period of convergence has led some to wonder whether the flattening out of market rents will ever fully show up in official measures of housing inflation. Skeptics point out that measures of market rents produced by the private sector are based on different samples than the CPI and may not be representative of the entire urban U.S. population.

Government researchers have started publishing a new-tenant rent index calculated from the same sample as the CPI, which confirms that average rents have caught up to market rents as of the fourth quarter of 2023. The NTR index is subject to revision, but typically the last data points undergo the largest revisions, and subsequent revisions are smaller.

It is notable that the fourth-quarter 2023 convergence still holds after a round of revision. Looking at the widest possible range of available information, it is probably only a matter of time before we see further slowing in housing inflation and overall inflation returns to the Fed’s 2% target.

The April CPI report confirmed further progress: Tenant-occupied rent increased by 0.35% from the month before, marking the slowest pace of increase since August 2021, right before we entered the period of supercharged rent growth.

Our read of the underlying detail is that the slowdown in market rents is resuming in official inflation data after a pause in the second half of 2023. The Fed has said that it “does not expect it will be appropriate to reduce [interest rates] until it has gained greater confidence that inflation is moving sustainably toward 2%.” Many areas outside of housing already show significant progress.

A move lower in housing inflation would probably be the confidence boost the Fed is waiting for.

Source: Barron's