Location, location, location. It’s the long accepted golden rule of real estate. Could it be possible that the golden rule of real estate is being rewritten to focus on the golden years?
The National Association of Realtors does a great job studying real estate trends and providing data that could be powerful to local municipalities if interpreted correctly and applied strategically. In its 2016 Home Buyers and Sellers Generational Trends report, the data showed that sellers ranging in age from 61 to 90 pick the same top three choices as a reason for selling.
This homeowner demographic chose to sell to move closer to family and friends, downsize, or retire. That’s not new news. Older homeowners have always sold their homes to move closer to family and friends, downsize, or retire. What’s new is that older homeowners may make up the majority of the homeowners in your town. That could mean an oversupply of inventory, which could mean longer market times or falling prices, even if activity is strong and the number of units sold is up.
A recent analysis of inventory in the Midwest Real Estate Data, the MLS service for Chicago and its collar counties, found that 160 out of 255 Illinois MLS areas excluding Chicago proper have a median age that is, according to Census data, higher than the national average.
Ninety-one suburban areas had inventory levels that exceed six months’ supply at the end of August, when inventory levels should be relatively low following the absorption brought on by summer months. Almost 70% of areas with six months’ supply or higher were disproportionately older, with 63 out of 91 areas with high inventory showing a median age that exceeds the national average.
Michael Einhorn, longtime president of the Village of Crete in the far south suburbs of Chicago, follows this phenomenon closely. Einhorn watches the age of the residents of Crete in order to make fiscal projections. Because Illinois taxes are collected a year in arrears but levying taxes must be done a year in advance, local municipalities can easily be knocked off budget by a surprise drop in tax revenue a year after budgeting.
Since senior tax exemptions in Illinois allow a $6,000 reduction in Equalized Assessed Valuation (EAV) per eligible homeowner, an increase of 100 seniors receiving the exemption over a previous year means a drop of $600,000 in EAV, resulting in a drop in revenue to the village in the correlating collection year. If more seniors apply in the following year, the drop in revenue is compounded.
Knowing the age of the homeowners and knowing how many of them are approaching senior exemption eligibility helps Einhorn and the village leadership anticipate budget challenges. We’ve had a baby boom in this country before, but this is the first time we’ve had an aging, retiring, relocating, downsizing, liquidating baby boom. They’re getting older every year, and older people sell homes.
As it continues to unfold, some communities will feel the pain of falling prices fueled by oversupply of inventory as seniors need to sell in numbers larger than younger buyers are moving in. Some communities will feel the pain of rising prices fueled by low inventory and increased demand if they are a retirement destination and the beneficiary of relocating seniors. Some communities will boom if buyers both young and old penetrate their market, benefitting from the enormity of both the baby boom and the echo boom.
As a nation, we’re accustomed to the real estate market moving in concert, either up or down, in response to a variety of economic factors. The market has never really had simultaneous hot spots and cold spots with no clear economic indicator, and it is confusing because local age distributions are not currently being factored into the statistics, so demographics are not part of the conversation.
Let’s change that. Here is an all-call for housing analysts to look at the data through a different pair of glasses as the boomers move through their aging years, so the public is more educated on this dynamic. Municipal planners need to analyze their age distribution relative to housing inventory so residents understand a local supply or demand issue.
In addition, builders need to identify markets that are drawing more than their fair share of one or both generations to accurately project demand, which may not be the same communities that needed new construction in the past.
Studying the data and demographics will push us toward new and innovative processes for providing homes. Join this conversation and more at HIVE 2016 - Register now.