The mill chill

For decades Boomers dominated housing. They still do. The home ownership rate among the wrinklies exceeds 70%. Compare that with 50% for the moisters (those aged 30 or more) and just 35% for American millennials. If there’s a lock on real estate, the old people have it. The asset’s performed well for them in, thanks to rampant inflation and fat economic growth, followed by years of lean interest rates.

But all this is changing.

There are more millennials (aged 22 to 37) than depleted hippies (54 to 72). In fact, mills are the biggest demographic in Canadian history. But the contrast with the old guys is dramatic. When they were 30, almost six in ten Boomers had houses. They got married earlier, established families sooner and walked away from their parental home as quick as possible.

Today the biggest generation is more urban, indebted, educated and in no hurry to leave the womb. A new survey (Royal LePage) found, astonishingly, 44% of Boomers still have children living with them. Of those, 20% expect the moisters to be in the basement until after age 30 and 10% are planning not to get rid of their kids after 35 – which used to be called ‘middle-aged.’

Huh? What happened to that youthful drive to be independent, free and wild oats-sowing?

The impact on real estate is palpable. It’s going down. Just as the wrinklies need to be extricating their net worth from those big four-bedroom suburban McMansions, the generation that should be popping kid #2 and moving up the property ladder is busy having mom do laundry.

Reasons abound. Student debt is crippling since now even baristas need MAs (or think they do). Cheap money since the credit crisis doubled the value of real estate, pushing prices out of reach. Insane government regs and taxes have skewered the market, making cheap houses and condos into unaffordable assets and retarding the entire market. Intense competition among the teeming masses of moisters has exacerbated this. And the economy has sucked for most of the time since they got out of uni. Slow growth. Stagnant incomes. Gig jobs. No pensions. Plus everyone needs to spend their disposable income on tats and iPhone 8s. S’tough.

Now interest rates are rising and will continue, thanks in part to the Inflation President. Big issue for real estate, which is negatively correlated to the cost of money. Millennial demand for housing has been seriously muted by flatlined incomes and retarded family formation. And a wave of Boomer selling is just commencing. While as a generation these people are wealthy, a disproportionate share of that net worth is in housing. It must be unlocked, since 72% have no corporate pensions and many have a piteous amount saved or invested.

In 1995 I wrote a book forecasting that by 2015 the stock market would be at record levels and housing would be in decline. I aced equities, but was three or four years off on real estate. But, sure enough, here we go.

Realtor conglomerates know what’s coming. There is an utter inevitability about the overall erosion in the market value of residential real estate as rates rise, generations jockey, taxes augment and the economy lurches forward in a Trumpian fog of protectionist tribalism. Desperation makes men to despicable things. When it comes to house-humpers, not much changes.

So, Royal LePage needs a spanking for its deliberate attempt to misstate the facts. Two days ago it issued a ‘report’ claiming real estate will be buzzing – with 1.4 million new purchases in the next five years – because Boomers will be moving to smaller properties or into smaller towns. “This is expected to have a meaningful impact on the housing market,” the company said. But “prices will not retract. When it comes to smaller homes and condos, downsizing boomers often become competition for young families and immigrants, helping to push prices up.”

“The main beneficiaries will likely be first-time homebuyers who are at the tail end of the millennial cohort and the much smaller generation Z. Downsizing boomers will also likely leave more space for older millennials who already own a house but are a looking to move to a bigger home as their families grow.”

Of course, LePage is in the business of selling houses, and making people want to own them. So it infers moisters should be buying now before downsizing Boomers suck up all the condos and affordable properties and price them out, giving them yet another reason to hate their parents. But the reality could be far different.

For a house-rich, investment-poor wrinklie to downsize there needs to be a sale first, then a purchase. More than 1,000 Canadian boomers retire every day, a number which will be matched every 24 hours for at least another 19 years. Twenty per cent of those people have saved nothing. Nothing. Over 40% intend to live primarily on government pogey – CPP and OAS crumbs. And three-quarters told fund company Franklin Templeton in a survey that they’re stressed out about not having enough to finance the rest of their lives.

This is why a tsunami of listings will materialize in the next five years. LePage may be correct about 1.4 million selling and downsizing, but there could be ten million more who just need to bail to survive. This will happen during a period of higher interest rates and when the retirement of thirty million Boomers adds a deadening weight to government overhead, and the economy.

The only possible conclusion: stay in mom’s basement as long as possible. When she punts you you to move to Temagami, buy.