Bernardsville New Jersey Real Estate & Home Sales : The Perfect Generational Storm
It is my hope that this post and research provides some clarity as to the cause of the housing downturn and the current market. As homeowners, and particularily sellers, it's important to see that we are part of a much larger generational dynamic that is driving supply and demand.
Each year, the National Association of Realtors (NAR) publishes its annual Profile of Home Buyers & Sellers. A wealth of information is included in the publication, statistics which are dissected by the media but largely overlooked by the average real estate professional.
The statistics released by NAR indicate that as a person rises in age, the likelihood of them selling increases and the likelihood of them buying decreases-which may not seem like new information. However, it becomes evident, when the data is analyzed in this manner, that 2006 presented the real estate market with the unique challenge of oversupply and under-demand as that year marked when the oldest Baby Boomers, born in 1946, first turned 60 years of age.
The largest generation we have ever know, with nearly 80% homeownership rates, had all become sellers, with the very oldest entering retirement planning. This meant we needed to increase the number of first-time buyers at the bottom of the market to absorb the rising inventory. However, by 2006 the average age of first-time buyers had risen to 33, and births fell in 1973. The first-time buyers we desperately needed in 2006 simply were not born.
In 2006, these two dynamics, the Baby Boomers entering their 60s and the average age of first-time buyers at 33 collided head-on. Census data shows that the birth rate dropped steeply beginning in 1973, and NAR statistics demonstrate that 91% of first-time buyers are native-born Americans, while consumers over age 60 are more likely to sell and not purchase again. The real estate market suddenly had a shortage of first-time buyers in 2006 just when we needed more of them.
The result was oversupply of inventory and lack of demand by first-time buyers simply because they were not born. This phenomenon went largely unaddressed until the passage of the Housing & Economic Recovery Act in August, 2008 which created the original $7,500 first-time buyer tax credit. By that time, inventory had stockpiled for nearly three years.
First time buyers drive the entire market. Simply put, without a first-time buyer no one else moves. When a first-time buyer purchases a small home from a homeowner that person can buy again, and someone else can either buy again-or build.
A first-time buyer can cause 3 or 4 sales as they each create their own mini trade-up cycle in the market. In 2006 first-time buyers represented 36% of the housing market, meaning the balance (64%) was trade up or new construction activity. In 2006 each of them represented nearly 3 sales per person. There just weren't enough of them relative to inventory.
The good news is that through the downturn years, 2006-2009, the average age of first-time buyers has fallen back down to 30. And, the next generation, Gen Y, which began in 1980 is just coming of age.
The bad news is that although we've seen record numbers of first-time buyers in 2009 and 2010, a rising number of this precious group are not getting on the trade-up ladder but instead buying vacant bank-owned properties, and many opportunities for trade-up activity have been missed. Thus, until the current stable of foreclosed properties and the so-called "shadow inventory" are cleared we will not see a return to a normal housing market. Current information indicates that will begin to happen around November 2013, but I'll keep you updated as time goes on.
If anyone has any comments pro or con about this post, your thoughts are well appreciated. Likewise, if you have any questions, you can also use the comment section or contact me directly via email at Larry@iOnBernardsville.com or call 908.251.7996.
Bernardsville New Jersey Real Estate & Home Sales : The Perfect Generational Storm
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