Baby boomers are the wealthiest generation in the United States; they have accumulated wealth like none other. They own the largest chunk of assets such as real estate, stocks and commodities. While boomers have worked hard to build these assets, what will happen when they start retiring? Many will sell most of their hard assets like their house for personal use at some point.
Liquid assets held in the form of bank accounts and money invested in the stock market will be gradually withdrawn during their retirement. However, the housing market will see the biggest transformation of all the assets. Baby boomers own 21 million homes and they are getting ready to sell 25% of America’s homes over the next two decades. With so many boomers approaching the retirement age, this generation may find themselves unable to cope with the stress involved in owning a large single-family home. Mowing the lawn regularly, occasional breakdown of appliances and heating equipment, painting of the house, house repairs and many other ongoing expenses - and personal energy required to maintain an independent home - can become highly inconvenient for older adults.
Eventually, most seniors prefer to either move into smaller apartment units or into an assisted living facility meant for senior citizens. This move will cause tens of millions of homes owned by boomers to hit the market for sale in a relatively short time.
Housing sales by baby boomers will likely cause the biggest fire sale in the real estate market due to oversupply. Housing prices will face an imminent crash. Moreover, the younger people, aka, the generation X and generation Y, have a lesser preference for putting money in hard assets like a home. Generation Y already prefers staying in smaller or shared housing units like apartments.
Foreign buyers like Chinese buyers who have been buying houses in the USA, may have reached their appetite by then for the US housing market. Trade tensions between USA and China may in fact lead to these Chinese buyers selling their real estate assets in the near future.
Many believe that owning a home is never a great investment over time anyway, and that gold and stocks are a better investment asset. Expenses related to real estate are not just about repairs; insurance and property taxes eat up a large chunk of house appreciation. Moreover, selling a house has a huge tax advantage. If you owned and lived in the house for two of the five years before the sale, then up to $250,000 of profit is tax-free. If you are married and file a joint return, the tax-free amount doubles to $500,000.
Boomers would rather spend their money on life-experiences such as traveling around the world, and build a war chest for unforeseen future medical expenses. With baby boomers retiring at a fast pace, the economy may see a major to minor correction in other sectors as well. Many boomers today are rich doctors, dentists, small business owners, CEO’s and private contractors. Recessions like the one caused by the coronavirus pandemic cause a sudden rise of unpaid bills, and demand for industries such as collection agencies. For example, dentists may contact a dental collection agency and corporate lenders like banks may hire a credit card collection agency to recover money from unpaid bills. A crash in the housing market will see the demand for mortgage debt collectors. This may further cause panic selling.
Boomers should hire a financial or asset advisor to protect their finances once they reach retirement age. Financial advisors can protect the net-worth of retirees in a sensible and low-risk manner, rather than making decisions in an emotional or abrupt manner.