Delayed Downsizing Means Fewer Choices For Millenials

In the past decade, about 5-6 percent of all owned homes in the NVAR region were sold each year. In 2000, the turnover was about 8 percent. The real estate cycle has played the largest role in this decrease, but demographics may be increasingly contributing to relatively low sales and inventory. A large share of home owners are at least 55 years old, and a large share of homes have had the same owner for more than 20 years. As a result, the pool of potential homes that might be sold has shrunk, which may be suppressing turnover. 

HOW ARE CURRENT HOME OWNERS DIFFERENT THAN IN THE PAST?
One of the largest generations that this nation has seen, the Baby Boomers, are now between 52 and 70 years old. The sheer size of this generation has resulted in a larger number of Boomer owners than in 2000, both nationally and in the NVAR region. 
In addition, advances in healthcare and technology have allowed more seniors to stay in their homes longer. The increased ability of seniors to age-in-place has played a role in the larger number and share of home owners more than 75 years old. Lastly, the relatively low home ownership rates of Millennials (those younger than 35 years old) and Generation Xers (those between 35 and 51 years old) have increased the significance of Baby Boomers and the Silent Generation, (those over 70 years old) in the ownership market. 

As shown in Figure 1, these national trends are also shaping the NVAR market. In the NVAR region, 156,000 owners are 55 years old or older. In 2000, just 109,000 home owners were. As a share of home owners, this shift is even more drastic. In 2000, 49.1 percent of all owners were aged 55 and above. As of the most recent data, 58.3 percent of all owners are 55 years or older.

Similarly, a larger share of the housing stock had the same owner for 20 years or more. Older households tend to move less frequently, a trend which has been reflected in the share of homes  owned for longer periods. Currently, 14.6 percent of all housing stock in the NVAR region has the same owner for 20+ years, up from 11.4 percent in 2000. This includes units in multi-family buildings and units that are vacant or rented. The share of rental units has increased over time, as well, which makes this increased tenure of homeownership even more remarkable.

In particular, single-family detached homes are more likely to have the same owner for 20+ years when compared to 2000. The majority of single-family detached homes are owner-occupied, and only 13 percent are rented, vacant or used as a second home (Figure 2). Overall, 28.7 percent of single-family detached home had the same owner for at least 20 years. In 2000, this share was just 23.2 percent. 

The largest difference, is that fewer single-family detached homes have been owned for less than 10 years. Both demand and supply may have played a role in this change. While the loose credit leading up to the real estate boom may have allowed for more, newer owners, the trend has reversed and may now being limiting the pool of new owners. Other factors, such as student loan debt and a weak job market, have also been a hindrance for would-be owners. 

"While the loose credit leading up to the real estate boom may have allowed for more, newer owners, the trend has reversed and may now being limiting the pool of new owners."

However, a smaller universe of single-family detached homes would have been available for new buyers during this time, because of the large number of owners who have stayed in their homes longer. This may have limited the variety of homes available. Ultimately, new buyers would be competing for a more limited selection of homes, with only the most financially stable being able to qualify.

The share of homes owned free and clear also indicates that either the financial hurdles or the competition has been greater for younger (newer) owners. Overall, current owners are more likely to have paid off their mortgages than owners in 2000, but this difference has been driven entirely by owners under 65 years old (Figure 3). Younger owners are now more likely to have paid off their mortgages than in 2000. Conversely, owners aged 65 and older are less likely to have done so, and they may have refinanced when interest rates declined.

WHAT DOES THE FUTURE HOLD?
Many home owners 55 years and older are empty nesters with more bedrooms than their household may need (Figure 4). Some of these bedrooms may be reserved for their children's or grandchildren's visits or are  used for other reasons. On the other end of the spectrum, few younger households have room to grow. 

“Baby Boomers have not yet started to sell their homes in large numbers, and Generation Xers and Millennials may not be in a financial position to take their place."

The traditional cycling of homes would result in older households downsizing or leaving the region altogether, and younger generations trading up and taking their place. But Baby Boomers have not yet started to sell their homes in large numbers, and Generation Xers and Millennials may not be in a financial position to take their place.

The Recession and the housing bust may have prevented Baby Boomers from selling without taking a financial hit. Now that home values have largely recovered and wage growth has returned, will there be a higher turnover rate in the region? Or are more Baby Boomers planning on working longer and staying put for another decade? Aside from the plans of the Baby Boomers, will Generation Xers and Millennials have the savings and financial stability to buy, and buy larger homes? So far, there is no hard data to answer these questions.

CONCLUSION
More than 88,000 homes in the NVAR region have not been on the market in more than 20 years. Nearly all of these homes are held by owners who are at least 55 years old, and the majority of all homes are currently held by someone at or nearing retirement age. In the short-term, this has reduced the universe of homes that are and have been for sale. In the long-term, these homes may come onto the market over a relatively short timeframe, causing a demographically-driving "boom" of sorts. The new owners of these homes will likely be younger, which may shift the home owner demographics back to the 2000 age distribution. The homes that will be vacated can also accommodate more people than are currently living in them, in which could support additional population growth for the region.