A look at the effect on three different cities.
New research from Zillow cautions that a “silver tsunami” of some estimated 20 million homes previously owned by baby boomers is likely to flood the housing market over the next two decades. In some cities, such as Tampa, Tucson and Miami, more than 30% of the residential housing stock could come on the market. Will a surge in supply oversaturate the market or provided much needed inventory relief?
Housing experts have attributed historically low home sales – in both volume and velocity – to shortages in inventory, specifically entry-level home inventory. Recent forecasts predict 2020 will see the national housing shortage reach a historic low.
“We’re about to find out if indeed more inventory makes for a healthier market by moderating home price appreciation and raising homeownership rates,” said Tim Rood, Managing Director of Federal and Strategic Solutions at SitusAMC. “Or we might learn that the inventory coming online will be obsolete, undesirable, and drive average home prices down. As with most things having to do with real estate, local fundamentals and proactive city planning will determine which markets benefit.”
How the housing market will handle this kind of inventory depends on the individual market, the economic health of the area, job opportunities and its attractiveness to younger generations such as millennials.
While many senior communities possess things that millennials are similarly looking for in a home, such as walkable amenities, transit-oriented conveniences, access to communal space and low property maintenance, oftentimes these communities are not located or affiliated with job-producing industries or major companies.
“Community planners and municipalities will need to be very proactive and engage financial investors, commercial and residential developers, job producing industries and major corporations to reimagine their communities to be successful during the next wave of generational movement through the housing market,” said Rood.
Zillow estimates that from 2007 to 2017, 730,000 homes previously owned by boomers entered the market each year. That number is expected to grow to 920,000 from 2017 to 2027, and to 1.17 million from 2027 to 2037. This should align with an increase in millennial homeowners, expected to reach over 10 million by 2028.
Housing markets with strong local economies, affordable housing and features desired by millennials are likely to fare better than traditional retirement areas with inflated home prices and slower job growth.
Here’s a look at how the silver tsunami might affect three different cities in their current configuration:
“Despite some attractive features to millennials, the already unaffordable housing market and relatively small population of younger households in the area is likely to deter millennial homeownership, which could make Tampa vulnerable to the silver tsunami,” said Rood.
By 2037, one-third of all homes in the Tampa/St. Petersburg/Clearwater area will be released on the market by boomers, reflecting the nearly 30% share of the population that is over the age of 65 today. Although frequently ranked one of the most popular retirement destinations in America, the city’s millennial community is one of the smallest in the country, representing only 21% of the overall population.
While millennials may be attracted to the lower cost of living and diverse culture, the state of the housing market has been a barrier to younger homeownership. Tampa has the sixth highest price-to-income ratio, is the 36th least affordable housing market, and was named by Redfin as one of the top 10 metros with the highest risk of a housing downturn during a recession.
“The release of more than a quarter of the homes onto the market in Rochester should be offset by strong millennial demand,” said Rood.
By 2037, Zillow estimates that 28% of all of the homes in the Rochester area will be released onto the market. The effects of this supply should be offset by the city’s growing millennial population. Although a quarter of the population today is 65 or older, Rochester is among the top 18 cities where millennials are moving at the highest rates.
The healthy housing market, according to Redfin, has the lowest risk of suffering a downturn during a recession and is among the top 10 cities in the U.S. for millennial homeownership. Homes in Rochester are 45% more affordable than the national average and 81% of homes are affordable for the city’s median income.
A mix of economic conditions and social features, such as short commutes and low health care costs, are likely behind the millennial attraction, and have landed the city on the top 10 lists for “coziest cities” and “least stressed out cities” in America.
“By the looks of it, the silver tsunami will pass Austin by,” said Rood.
Austin is one of the cities with a comparatively small share of homes that are likely to be affected by the silver tsunami. By 2037, about 20% of the homes in the area will be released onto the market.
The southwestern city is relatively affordable compared to other major cities, with its housing market falling in the middle of the 50 largest cities in terms of the risk of a housing downturn and the cost of living is only 1% above the national average. Rent prices are also more affordable than the typical major metropolitan area; Austin ranks the third best city in the U.S. for renters.
Austin boasts a healthy job market, including a booming tech sector, and is the sixth fastest growing city in the country. The local economy, a robust calendar of live music events and outdoor recreational activities might explain why Austin is the fifth most popular city in the U.S. for millennials.
“On the larger scale, the silver tsunami shouldn’t be as devastating as its ominous name suggests,” said Rood. “Certain cities may be harder hit than others. For those cities, it’s a good idea to start looking at ways to make the local housing market and economy more attractive to the next generation of homeowners.”
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