Posted on 04/18/2024 12:31:09 PM PDT by TigerClaws
Among the many hard truths for those trying to enter America's brutal housing market, here's one: Baby boomers continue to own many of the country's large houses, even after their households have shrunk to one or two people.
Baby boomer empty nesters own twice as many of the country's three-bedroom-or-larger homes, compared with millennials with kids, according to a recent analysis from Redfin. That means those larger homes aren't hitting the market, one factor limiting the supply for the younger generations who could use those extra bedrooms.
Some baby boomers, the generation now between the ages of 60 and 78, are happy in their large homes, using the extra bedrooms for hobbies and visiting family. Others say they want to downsize, but it just doesn't make sense financially.
Some want to downsize, but the numbers don't add up
Sherry Murray, 73, and her husband, 80, bought their house in the North Hills of Pittsburgh in 1991, for $240,000. It's got four bedrooms, including some they don't use anymore. Many of her friends are in the same boat.
"What a lot of us have done is not walled off the extra bedrooms, but closed the doors, and you try not to have to maintain them," she says. "It's just too much house at this point."
The house is paid off, and Murray has wanted to downsize for a while, but she says homes that fit what she's looking for – 2,000 square feet, all on one level, in the same suburban area – sell quickly and for a lot of money.
So they've stayed put.
"You don't want to be economically stupid. If my house is worth even $650,000, I don't want to spend $1.1 million to downsize substantially, knowing that on top of that, I'm probably going to have to pay some [homeowner association] fees," she says.
Smaller homes can cost more if they're newer, or are part of a community that provides extra services. Some metro areas have few one-story homes, making them hot commodities.
Some homeowners are also affected by what's known as the mortgage lock-in effect. While 54% of baby boomer homeowners own their homes free and clear, according to Redfin, most of those with mortgages have low rates. So it doesn't make much sense to take out a new mortgage, with rates now around 7%.
"It just is a dumb economic decision to spend that much extra money for getting so much less," Murray says.
Across the country, many baby boomers are facing their own version of this calculus: It can be cheaper — and more appealing — to stay in their current, large house, than to sell it and move to something smaller.
This doesn't only affect younger buyers.
"You've got a pure housing mismatch for older homeowners. They are mismatched physically or functionally with the house that they're in," says Gary Engelhardt, an economist at Syracuse University who studies aging and housing markets. "That's because it's multifloor living. It's stairs. It's also other upkeep."
Engelhardt says that's a serious concern because it can can lead to things like falls. "And falls can be very devastating, could have very devastating health consequences, especially for the oldest old," he says. "In general, we would like to have older homeowners ... matched with their housing in a much better way than we currently have."
So what could be done?
Engelhardt says there are basically two policy approaches to deal with what's happening.
First, he says, is to provide subsidies or tax credits for home modifications that allow older adults to age in the homes they have. While that could make seniors' current housing safer, it doesn't put those houses back into the market.
Second, encourage building housing that's well suited to older Americans, Engelhardt says: "You promote the construction of new residential units that are going to be ADA compliant, that are going to have universal design and all the types of features that lend themselves to a better match of functionality at older ages."
For instance, the government could create a tax credit to encourage developers to build accessible housing, akin to the Low Income Housing Tax Credit that incentivizes building affordable housing.
Jenny Schuetz, a housing policy expert at the Brookings Institution, says in trying to incentivize older adults to move out of homes that are now too large for them, different tools are needed depending on their geography and financial resources. For instance, a lower-income homeowner of a deteriorating row house might be willing to a swap for a newer, smaller apartment in an elevator building, if there was a program for that.
But longtime California homeowners who've seen their property values skyrocket would likely require a different approach, Schuetz says. There, Proposition 13 strictly limits increases in property taxes – so that many longtime homeowners pay taxes on a small fraction of their home's value. That created its own lock-in effect, though a recent rule change allows those over age 55 to keep their lower tax rate if they buy and move into a home of equal or lesser value.
Building more housing that's attractive to seniors
There are other policy changes that could make it easier to build housing for different life stages and thereby entice boomers to downsize.
"I think one of the things that we know to be true is that older adults want to be able to age in their communities," says Danielle Arigoni, managing director for Policy and Solutions at National Housing Trust. That's where they already have friends and neighbors, doctors and bus routes they know — familiarity that makes aging in their community possible.
I wonder how many fall prey to the "Reverse Mortgage" scam?
The way I understand it the price you bought at plus $250k, after that you pay capital gains.
IRS tax code 121
Glad renting worked out for you. Doesn't work for others. My oldest daughter and her husband were renting, paying $2000 a month about 8 years ago. They moved to Iowa and bought a home for $80K, and began fixing it up. When they moved, the former landlord raised the rent to $3000 a month. Daughter and husband own their home with no mortgage at all, big savings. Home now worth about $400K.
When you rent, you don't get any equity when you move out. My youngest daughter was paying $3000 a month rent with her boyfriend, splitting the cost. He left, and it fell on her to pay all the $3000/month rent. We helped her with the downpayment and she bought a home almost two years ago, and the mortgage is a little more than what she was paying in rent. Now that she owns, she gets the benefit of the equity in the home, whereas the old rent payments were like throwing money in the toilet.
The writer seems to think it's "quaint" that grandparents would want to hold on to those "extra" rooms so that their gown children's family can visit and stay over. Or their friends, for that matter.
Sez who?
You can have my McMansion when you pry it from...
“ many of these seniors purchased these homes decades ago and are sitting on millions in equity.”
They’re trying to push us out by raising our assessments, so our property taxes are going through the roof. Our taxes have gone up 30% in the last three years alone. Our modest home in a Virginia suburb now costs us nearly 10 grand a year in property taxes. I’m not sure we can afford to stay here after my wife retires in a couple of years.
When I was 64 and my wife was 59, we bought this place on a 30-year mortgage. It's unlikely that either of us will live until 2049. I don't care if we die before it's paid off. That'll be someone else's problem.
We own a house in NC, free and clear, where my wife’s 84-year-old mother lives. We are always getting solicitations to buy the place, just as you describe. The mailings go in the trash, but I always tell the phone callers that the asking price is $10 million dollars cash, non-negotiable, take it or leave it.
No takers yet, but they keep calling anyway.
Good for them. We all have different circumstances.
I think about the thousands I didn’t spend on interest and invested.
In the last 35 years I’ve gone from paying $800 a month in 3 places to now, after 25 years in one apartment paying $1800.
$500K for married couples. The seller pays long term capital gains. The rate varies on income. The rates are 0, 15 and 20%. I wouldn't think many single people would be eligble for the 0 rate. It is probably a bit easier for married couple to pull it off if they own the house outright or have low mortgage payments..
If you are under the limit of $250K capital gain for singles and $500K for couples, there is no tax. I haven’t seen any home sales tax relief based on one’s age. There are age requirements to tap retirement accounts without a penalty.
And none of them ever mention how the elites own homes much too big for THEM. Lots of room in celebrity homes for all those drug dealer Venezuelans.
it is a shame you dont live in a state like Texas that protects seniors by freezing in their property tax rates
Well, when I took my course in taxation, the state of the law was different. Fortunately, I never became a CPA. I might have been more up to date, but not my idea of a life. Accounting. Bleah.
This is about the fourth article I’ve seen in the past week with the same theme. There was recently one in the WSJ.
So, where are all these “boomers” going to move to after selling their paid-for home? Or, are they just going to be encouraged to apply for MAID* service?
Hubby and I worked hard so that our place would be debt-free when we retired. I want my grandchildren to have a safe-haven for the hard times that are a-coming. Don’t try to tell me I need to give it away so illegal aliens can have a place to live. Deport the illegals here and the housing problem will be solved.
*Medical assistance in dying (MAID) is a process that allows someone who is found eligible to be able to receive assistance from a medical practitioner in ending their life.
Home sales remain at crushed levels as the entire housing market has shrunk by about 20% because homeowners with 3% mortgages are neither buying nor selling, and have vanished as demand, and have vanished in equal number as supply, and due to them, sales are down and supply is down in equal measure, and so churn is down.
Realtors are fretting about the drop in market volume because they make commissions off the churn. And for Realtors, it’s not looking good at all.
I looked up my state's rule for taking the CG exemption for home sales. It is 55.
My course was at Brooklyn College, and dealt only with federal taxation issues, as they existed during the 1990s.
That explains things. The rule you cited expired in 1997 and was replaced with the current rule.
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