March 19, 2024 – As baby boomers age, their homes are going to increasingly be hitting the open market. Will it Spring?

Economic Commentary

Believe it or not, today is the first “night” of spring, as the Spring Equinox happens late this evening. This means that we are almost through the first quarter of the year. Spring is especially important not only because of the nice weather and the flowers, but also because it is prime real estate season. Going into the new year, there was much optimism about a real estate recovery in 2024 because mortgage rates had finally turned downward. However, this optimism did not necessarily turn into an early spring for real estate. What happened?

A late real estate spring is often caused by bad weather. If most of our cities are covered in snow, people tend to stay inside for the winter. And we have had some rough weather, especially in California. But much of the nation has experienced another mild winter. What we have experienced is considerably good economic news. The economy has been so strong that the markets have given up on a rate decrease by the Federal Reserve at their March meeting, which also starts today. In November, the markets were betting on a March decrease. Now bets are on a June move, which takes us to summer.

Regardless of the Fed’s decision tomorrow, everyone will be analyzing their announcement after the meeting for any glimpse of when the rate cuts will come. Keep in mind that we don’t need to wait for the Fed to lower short-term rates for mortgage rates to start falling. As soon as the markets start speculating that the Fed is going to act in the near future, the markets will move in anticipation of this activity. Which is exactly what happened during the last quarter of last year. There is another reason that the markets may be optimistic about the Fed lowering rates. As we get close to the election season, the Fed typically shuts off rate activity for fear of influencing the election. Thus, if they are going to lower rates, they can’t wait too long, or it will be next year before they can act.

Weekly Interest Rate Overview

The Markets. Mortgage rates eased again in the past week, despite higher-than-expected inflation numbers. Rates did move higher the day the survey and wholesale inflation numbers were released. For the week ending March 14, 30-year fixed rates fell to 6.74% from 6.88% the week before. In addition, 15-year loans decreased to 6.16%. A year ago, 30-year fixed rates averaged 6.60%, 0.14% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The 30-year fixed-rate mortgage decreased again this week, with declines totaling almost a quarter of a percent in two weeks’ time. Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation. In this environment, there is a good possibility that rates will stay higher for a longer period of time.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

As baby boomers age, their homes are going to increasingly be hitting the open market. A new report from Freddie Mac estimates that declining homeownership for the group will free up 9.2 million homes by 2035. Right now, boomers have a pretty large grip on the US housing market. The generation accounts for about 21% of the total US population, but they own 38% of American homes, Freddie Mac found. “Boomers are overrepresented in the homeowner demographic because homeownership rates tend to increase as households age, gradually starting to decline as households age beyond age 75,” the report stated. This year, the youngest boomers will turn 60. That means that over the next decade or so, as more people age past 75, they will let go of their homes on the market. Some top forecasters like Meredith Whitney have described this phenomenon as the “silver tsunami” that will bring a wave of inventory back to the market. The offloading of homes will accelerate in the 2030s as boomers reach the ages of 70 to 80, Freddie Mac said, based on an analysis using American Consumer Survey data. The 32 million homes owned by the generation as of 2022 will drop to 23 million in 2035, when the oldest boomers will be close to 90 years old. But that’s assuming boomers’ household retention rates follow the same pattern as earlier generations. “It is possible that we may see a different outcome,” the report said. “The estimates based on historical retention rates may be too negative. Retention rates have been increasing over time as health outcomes for older Americans improved and life expectancy has increased.” Source: Business Insider

The median age of owner-occupied homes is 40 years old, according to the latest data from the 2022 American Community Survey. The U.S. owner-occupied housing stock is aging rapidly especially after the Great Recession, as the residential construction continues to fall behind in the number of new homes built. New home construction faces headwinds such as rising material costs, labor shortage, and elevated interest rates nowadays. With a lack of sufficient supply of new construction, the aging housing stock signals a growing remodeling market, as old structures need to add new amenities or repair/replace old components. Rising home prices also encourage homeowners to spend more on home improvement. Over the long run, the aging of the housing stock implies that remodeling may grow faster than new construction. New construction added nearly 1.7 million units to the national stock from 2020 to 2022, accounting for only 2% of owner-occupied housing stock in 2022. Relatively newer owner-occupied homes built between 2010 and 2019 took up around 9%. Owner-occupied homes constructed between 2000 and 2009 make up 15% of the housing stock. The majority, or around 60%, of the owner-occupied homes were built before 1980, with around 35% built before 1970. Source: National Association of Home Builders

The rate of homeownership for racial minorities increased in 2022 (the year with the latest data), with Asian and Hispanic Americans achieving historic peaks of 63.3% and 51.1%, respectively. However, despite these advancements, great disparities still exist among racial and non-native ethnic groups, notably with black homeowners. People of color continue to endure significant buying challenges throughout and after their home purchases, according to the newest report released by the National Association of Realtors (NAR). The report, entitled “2024 Snapshot of Race and Home Buying in America” dives into the homeownership trends within each racial group and explores obstacles encountered during the journey to homeownership. Leveraging another report to bolster this data, the “Profile of Home Buyers and Sellers,” explores the demographics of home buyers, motivations for purchasing types of properties acquired, and the financial profiles of these people—specifically focusing on racial distinctions. Comparing current numbers to those recorded a decade ago, homeownership significantly increased from 63.9% in 2012 to 65.2% in 2022, as approximately 10.5 million more homeowners found their homes. However, this number declined from 65.4% in 2021 during the throes of the COVID-19 pandemic. This was mostly influenced mostly by the challenging housing affordability and inventory conditions. The black homeownership rate experienced a modest uptick to 44.1%, but remains substantially lower than other ethnic groups, including Whites, at 72.3%. Since 2012, the homeownership gap between Black and White Americans has widened from 27% to 28%. Asian Americans (6.1 percentage points or 1.5 million households) and Hispanic Americans (5.4 percentage points or 3.2 million households) experienced the largest homeownership rate gains over the last decade. White American homeownership grew by 3.1 percentage points (65,000 households), maintaining around 70% since 2017. Source: DSNews