Big demographic changes ahead

[trendsta]

With the first of the oldest baby boomers reaching the "official" retirement age next year, what do you guys think will be the impact on various assets, and in particular the various property markets in australia? Which asset and prop markets will benefit and which will loose out ?

Baby boomers: born from 1945 - 1965 (or thereabouts)
Official retirement age: 67
Rough retirement period: 2012 - 2032

I have been pondering over this change for a while now because I think it will have a huge impact on asset prices and direction, and I am still unsure how it will play out. From the other thread it looks like MIW, a very seasoned investor, also has this on his mind.

In general I think baby boomers will start retiring or at least working part time. GFC has simply delayed this trend by few years. The biggest impact will be the substantial reduction of income and they will need a way to supplement at least part of that lost income. They will stop acquiring and start divesting assets. Yield will be the bigger factor than capital growth.

My opinion is they will sell off negative geared props. From personal experience, I talked with a some agents about a number props and asked they why the owner was selling. I am hearing "investor looking to retire / pull money out" quite often now. I mean its just a very very small sample of the market, but it does make sense. If you have a negatively geared prop and your income is reducing chances are you will sell out.

Downsizing would be another trend.

Being close to employment centers will not be a factor. Bigger factors will be lifestyle location and proximity to family.

I also think they will (already have) reducing their share holdings i.e. convert from growth supers etc to "balanced" or income/yield supers. They will look for income, bonds, term deposits etc.

Any other views out there??

 

[weg]

You may well be right on some points, but personally I thinks some of the assumptions you make on how the BB will behave may not eventuate, or be that significant.

Although not BB's, I have many friends who have parents 75+, and know even more through my elderly mother and IL's, and ALL of them have remained in their own homes, and none have negative geared property that I know of (many have long ago paid off their IP's that they intend to pass onto their kids).

So I wonder why the BB would be different in that the'd want to downsize, or sell their property?

I think the most significant change would be less the result of behaviours of those with assets, and more the fact that many with few, will be financially dependent on the government for longer - many BB don't have IP's, or much super.

 

[Aaron_C]

The one thing that I have seen time and time again, at all the auctions I've been to, is the prevalance of Baby Boomers with/helping their Gen X/Gen Y children buying properties. This is probably where the vast majority of Baby Boomers will use their current assets, most likely in a limited guarantee/family guarantee/cross collateralisation arrangement to help their kids buy a house in an inner-city suburb. I doubt it would contribute to a massive sell-off.

As for downsizing - I agree with that trend. Which is why I have property in both inner-city (where Baby Boomers will downsize to away from the suburbs) and in the lifestyle areas (in Mornington Peninsula where the Baby Boomers will retreat to on the weekend as they retire).

 

[wylie]

I'm going to ask a serious question here...

Am I going MAD, or was this same question asked a few weeks ago?

I read it, checked the post time (today), but I seriously think I have read the initial post, plus the second post and possibly the third post?

Anybody else feeling like its Groundhog Day, or should I take a Bex and have a lie down?

 

[weg]

A Bex and a lie down might be in order, wylie .

My post was definately written today.

 

[Aaron Sice]

mmmmm.......it certainly is interesting.

remember that as the banks pull funding from BBs as they retire, they need to at least maintain the status quo for deposits and lending interest.

it could actually signal easier credit for "the rest of us" which would fuel the credit based growth in this country again until its ultimate demise mid 2020's.

in which case it woild actually be a good time to be in property. on the other hand, i dont think anyone should be buying outside cbd/transport/lifestyle corridors.

i honestly think the suburbs are a bad investment by comparison, especially considering the high (and continuing upward) cost of personal movement.

this is why im bullish property in these areas, and relatively negative others. it may seem confusing, but it works in my head....!

 

[Aaron Sice]

damn AC, i just posted that! quick!

 

[Fifth]

I have no idea what's going to happen when the BBs hit retirement. I've met all kinds of BBs and, as with any generation, there is no single prevailing stereotype. Statistically, most will run out of super before they kick the bucket and that's when things should get interesting. Generally speaking, I think they'll find the pensioner lifestyle harder to adapt to than their parents did. This is when I expect many will reluctantly offload or downsize.

 

[VYBerlinaV8]

A few thoughts...

Baby boomers are, in my mind, more likely to stay at work than retire on a pittance. Many of the older workesr I know have decides to work longer rather than live off less. How much longer can they go on? Who knows, but not forever.

Baby boomers take a lot of pride in their homes, and will hang on as long as they can, even when impractical to their needs.

Baby boomers with bugger all assets or super will be in the same boat as previous generations: continue ekeing out a living any way they can, with support from the govt. Baby boomers with good asset positions are less likely to offload negative geared properties because they have either held them long enough to be positive cashflow or have made enough money off other investments to allow them to hold. They are highly unlikely to arrive at retirement, and suddenly say 'hey, this is negative geared, better offload'.

Many baby boomers, especially the parents of Gen Y, believe their kids have it harder than anyone and thus need help buying property. This help, combined with Gen Y incomes, means there will still be demand for median style housing in the suburbs. Gen X is now starting to get cashed up and is buying the more expensive stock. Baby boomers will also leave property to their kids when they pass on.

FWIW, I don't think baby boomers retiring will make a lot of difference to property prices. The next big factor as I see it will be Gen X hitting their 'peak spend' about 10-15 years from now.

 

[Angel]

I am a young baby boomer born in 1960.
Every BB we know lives in a 'normal" conservative home and will not be downgrading. They are not the greedy generation that is often bandied around in the media, from my experience it is those younger than us who have to have the boat, the McMansion and all the do-dads. The only people we know who live in large homes are younger than us, the majority being Gen Xs, at least five years younger than us.

To be honest, by the time we have paid off the PPOR, gotten the kids through Uni and got the house "just the way I want it", the last thing we want to do is pack it all up to relocate. I associate with many couples (post kids) who have a modest home base. Every one of the 50-60 year olds we know are settled. We might plan to travel but always "come home" to that money pit that we have been emotionally attached to for the last 25-30 years.

Out of all the people I work with or socialise with, who are my age or older, there is only one couple who have a huge home. They plan to downsize in the future. The others dont want to move into an apartment that is really the same size as the stand-alone place we already own. We still love our land and that space that goes all the way around the house. We think that townhouses and apartments are for immigrants who are used to crowding, and young people who dont do gardens. We grew up in the Burbs where everyone had a huge block of land with a modest house on it, even if our family was renting. I believe that inner city housing is too claustrophobic for my age-group.

I would be interested in the opinions of others my age, especially if you have a different perspective.

 

[travelbug]

As for downsizing - I agree with that trend. Which is why I have property in both inner-city (where Baby Boomers will downsize to away from the suburbs) and in the lifestyle areas (in Mornington Peninsula where the Baby Boomers will retreat to on the weekend as they retire).

I can't see Baby Boomers downsizing from the burbs to the city. What would be the point? When people downsize they usually do so to get he spare cash. Downsizing to the city from the burbs will not achieve that as smaller properties in the city are more expensive than larger ones further out.

We may downsize, but only if I can make money doing it. Otherwise I may as we sit here and save they heartache of trying to get my hubby to throw anything out of his garage.

 

[Aaron_C]

I can't see Baby Boomers downsizing from the burbs to the city. What would be the point? When people downsize they usually do so to get he spare cash. Downsizing to the city from the burbs will not achieve that as smaller properties in the city are more expensive than larger ones further out.

It's not expensive if you sell your quarter acre block of land in the suburbs. My own Melbourne CBD apartment building has a significant proportion of baby-boomer age residents. They live here for the convenience and lifestyle (theatre etc nearby) plus who wants to clean a 4 bedroom house when all your kids have moved out?

 

[pully]

totally agree with downsizing and lifestyle being important.

we have been looking to do just that, both in the bb demographic. a lock up and leave type of place, we like to travel and security and close to amenities also important.

it would be appealing to be able to just walk to shops/cafes etc and not having to depend on a car.

selling properties etc is not that important we could keep them, in fact we have considered moving into 1 of our well located properties, instead of buying a new ppor.
lots of benefits in doing that no cgt etc. we would need to do a complete reno to bring up to what we would like to live in.

not all bb are the same it probably depends on their individual positions, in terms of finance, health status etc.

 

[twobobsworth]

Many baby boomers, especially the parents of Gen Y, believe their kids have it harder than anyone and thus need help buying property.

Was speaking with a solicitor yesterday. He is gobsmacked at the amount of parents providing the financial backing for their kids to buy their first home. Not just a case of getting them on the property ladder, but buying $700K ++ plus homes with all the mod cons.

 

[jingo]

Was speaking with a solicitor yesterday. He is gobsmacked at the amount of parents providing the financial backing for their kids to buy their first home. Not just a case of getting them on the property ladder, but buying $700K ++ plus homes with all the mod cons.

Just another thought, I know people (Gen Y) who have received an inheritance from their grandparents. (War generation - what are they called?). They wisely then put it down as a substantial deposit on a PPOR in a good suburb. (Nice period home in the inner area of Melb).

I wonder if this is happening across the board as well?

Regards Jason.

 

[sash]

Well....my 2cents worth.....

The baby boomers are not selling their larger home in the burbs out of choice more out of necessity. Alot of then have less than 100-150k in super so want freeup the capital in their homes. The other reason is they are not able to maintain the gardens and homes.

However, when they do downsize they still going for 3brms and 2 bath homes preferably on a single level with a small garden or courtyard. The funny thing is these homes are almost as expensive as the ones they are leaving as they are newer. The interesting thing is to see the gap in the price of townhomes/villas/small homes (less than 400sqm blocks) and houses in suburbs like Castle Hill, Kellyville, Cherrybrook, Blacktown, etc. has closed dramatically.

The other issue which I am hearing is that BBs are unable to their very large homes in areas like West Pennant Hills, CastleHill, Cherrybrook -i.e. house worth more than $1m. Some have been on the market for months. I think there is an opportunity to develop these smaller houses at a price point to supply this market.

 

[weg]

Just another thought, I know people (Gen Y) who have received an inheritance from their grandparents. (War generation - what are they called?). They wisely then put it down as a substantial deposit on a PPOR in a good suburb. (Nice period home in the inner area of Melb).

I wonder if this is happening across the board as well?

Regards Jason.

I think it's pretty common in those suburbs. I've seen a few over the years, aged in their 20's, with below average paying jobs, buying those 750K homes. A high percentage have been ethnic.

We have 2 properties across the road from us - one is an elderly Greek couple that gave each of their kids a paid off house (they told us), and the other a couple in their 20's, who moved in at around 21 (we call them 'the kids') and have low paying jobs.

Their house is worth over 1M and we assume with this second couple, her dad paid for it, as her husband grumbles to us that he alway like to have the final say on what they do with the house. He's always there and gets around like he owns it . Parents live a few streets away in a house worth about 3M.

 

[weg]

However, when they do downsize they still going for 3brms and 2 bath homes preferably on a single level with a small garden or courtyard. The funny thing is these homes are almost as expensive as the ones they are leaving as they are newer. The interesting thing is to see the gap in the price of townhomes/villas/small homes (less than 400sqm blocks) and houses in suburbs like Castle Hill, Kellyville, Cherrybrook, Blacktown, etc. has closed dramatically.

But is this downsizing? My own parents sold a couple of houses when in their 60's to build new, bigger - 3b,2bath,2 living areas,double garage - but low maintenence. They also wanted to be closer to their children and grandchildren (we encouraged them to do this).

 

[Guson]

However, when they do downsize they still going for 3brms and 2 bath homes preferably on a single level with a small garden or courtyard. The funny thing is these homes are almost as expensive as the ones they are leaving as they are newer.

That's my plan in the next coupla years, however I will be keeping my PPOR for possible future development. I will be building on a subdivided block, home will cost $250,000 - $300,000 while PPOR is worth $520,000

Retirement 10 years away.

 

[sash]

Well the key is the amount of yard maintenance.

The modern 3x2x2 can be lower maintenance if well built...though larger in floor space.


Also, 3 brm x2 units are also popular.

But is this downsizing? My own parents sold a couple of houses when in their 60's to build new, bigger - 3b,2bath,2 living areas,double garage - but low maintenence. They also wanted to be closer to their children and grandchildren (we encouraged them to do this).