As Boomers Downsize, Will Millennials Want Their Homes?
A mass exodus of Baby Boomers from homeownership is projected to happen during the next 15 years or so. Whether leaving for rentals, senior care facilities, dying or downsizing to a smaller home, many more older homeowners are expected to leave their empty nests and sell their homes.
The shift could have at least two effects on the housing market: Putting older homes up for sale that Millennials may not want, and pitting Boomers against Millennials for the same smaller homes that are often starter homes for first-time buyers but can also be in demand by downsizing homeowners. Both types of buyers would be looking for the best mortgage rates.
The Baby Boom generation, born between 1946 and 1964, own 32 million homes, accounting for two out of five homeowners in the United States, according to a report by Fannie Mae. Between 2026 and 2036, the number of older homeowners who exit homeownership is projected to total 13.1 million to 14.6 million — about a 42 percent increase over the number of older homeowners who exited during the last 10 years, the researchers say.
The Millennials are coming
Millennials will be just the start of younger generations seeking to buy homes that Boomers are leaving. But are these homes they want? And are they in neighborhoods they want to live in?
Nationwide Mortgage reports that more than half of Millennials expect to buy a home within the next five years. But the homes they’re seeking may not be the ones Boomers are leaving.
For example, 48 percent of Millennials in the Nationwide report said they wanted to buy newly constructed homes to avoid renovations and plumbing and electricity problems. They didn’t have the time or money for home renovations.
Many also said certain features that may not be in older homes. These include a luxury kitchen, solar panels, new fixtures and appliances, and dedicated workspace to work from home. They also want close commutes to work and to live near a city, though not necessarily in an urban city.
Not as many Millennials live in urban areas as you might think. Nationwide reported that only 25 percent of Millennials live in urban areas, and nearly 50 percent live in suburban areas. Four in five adults under age 25 live outside an urban core.
Seeking the same homes?
If many younger buyers are looking for suburban homes, they could be competing with downsizing Boomers for the same homes: walkable neighborhoods, smaller footprints in their homes and lots of amenities, says Dana Bull, a real estate agent in Massachusetts.
“These two trends mean that buyers in different generations — with wildly different points of view — are competing for the same homes,” Bull says. “Millennials buyers may find themselves competing with larger pocketbooks in their Boomer counterparts, where Boomer buyers may come up against Millennials who are more willing to put sweat equity into a fixer.”
Some Millennials may want to move to the suburbs for the same reasons Boomers moved there — to have children, have large homes with yards, and at lower prices than what they’d find in a major city.
Some such older properties may need home improvements, and lower prices for homes needing fixing may be enough to entice some Millennials to buy, says Jed Lewin, a real estate agent at Triplemint in New York City.
“Many homes that have been occupied by Baby boomers for often 30-40 years are coming on the market now, and while the demand for older pre-war homes is lower among Millennials, they present an excellent value opportunity for savvy buyers,” Lewin says.
“With the homes often renovated when the Boomers moved in in the 80s, and then updated again in the early 2000s, the homes are often in need of an updating of kitchen, bathrooms and floors, which gives Millennial buyers the opportunity to purchase the homes at a discount, and then create their own space within them,” he says.
“Anyone seeking to renovate knows that the home’s ‘bones’ are key, and the homes occupied by Boomers are often the easiest to renovate for that reason.”
With Boomers possibly leaving suburbs — such as moving to retirement centers or to apartments in larger cities — the suburbs could be transformed by builders to attract Millennials, says Evan Roberts, a real estate agent with Dependable Homebuyers in Baltimore.
“In the past few years home prices in the cities have risen due to a lack of supplies,” Roberts says. “With Baby Boomers leaving the suburban neighborhoods we’ve seen those communities transform their design plans to better mimic the conveniences of living in the city in order to attract Millennial homebuyers.”
“Traditional residential neighborhoods have started rezoning portions of their land to light commercial,” he says. “We’re seeing small restaurants and community shopping centers popping up to serve surrounding neighborhoods. We believe that as Baby Boomers leave the housing market these communities will reinvent themselves in order to attract Millennials.”
An example of this, Roberts says, is Columbia, Maryland. Every neighborhood there now has a community shopping center within walking distance and the construction of high-rise condos has begun to create a city center to the community, he says. “Prices continue to rise and Millennials have begun to flock to the area,” Robert says.
Other effects on housing market
A mass exodus of Boomers from long-held homes can lead to many effects in the housing market. In addition to creating bigger demand for smaller, less-expensive homes, it could leave Boomers with larger, more expensive homes having more difficulty selling, says Nick Giovacchini, director of client services for AlphaFlow, a real estate crowdfunding platform for investors. If they can’t sell, they could choose to get a reverse mortgage or refinance their home loan to a lower rate.
“For Baby Boomers with larger, more expensive homes, there will likely be a glut in supply, causing prices for larger homes to drop without a new source of buyers to sustain the market,” Giovacchini says.
To meet the needs of empty nest Boomers, builders will design high-end apartments and other types of homes for them, says Rick Bechtel, head of U.S. mortgage banking at TD Bank in Mt. Laurel, N.J. Highly amenitized apartments with gyms, doormen, pools, free Wi-Fi and other features can also draw Millennials away from the housing market, Bechtel says.
“Since the customization available through new home construction often is out of reach for them, it’s difficult to choose a small starter home or condo when more appealing apartments are available for rent,” he says.
“And apartment lease underwriting is far more forgiving than mortgage underwriting, especially for those with job changes, high levels of student debt or short credit histories,” Bechtel says.