Apr 172012
 

I hate to be the one to break it to you, but you’re getting older. Sure, you may look all sexy now, but every single moment is one step closer to your death. Nobody will come to your funeral. Sorry in advance.

Most of the people reading this blog have more years ahead of them instead of behind. Chances are, you’re in your 20s or 30s, since it’s a proven fact anybody over 39 is bad at the internet. Most of us have either only bought a house over the past few years, or haven’t even gotten around to buying a place. Some people, mostly Americans, are choosing to rent for even longer than before, shy to pull the trigger because of the giant real estate meltdown of the past 5 years in most American markets.

And then, we have our parents. They’re old, they’re cranky, and a good half of them need ED pills for sexy time. Some are still in the workforce, others have already retired. Some have ample retirement savings, while most others are going to come up just a little short. It’s a good thing government pension plans exist, or else there’d be a lot of baby boomers getting ready for a retirement filled with macaroni and cheese and cat food. Yeah, I’d be bummed out too.

Because these people decided going on vacation and buying all sorts of stuff was more important than retirement, many of them will face some interesting choices as their meager retirement savings start to run out. How are they going to get the money they need to exist, once they really start feeling the effects of inflation eating away at their savings? For most retirees, there’s one easy answer.

They’re going to sell their house.

My parents live in a 1250 square foot house, with a full basement underneath. There’s 5 bedrooms, 2.5 baths, a pretty big yard, and all sorts of other amenities that people look for in a family home. When you’ve got a whole family living somewhere, having a basement to send the kids is pretty outstanding. So is having a big yard, so they’ve got room to do stuff outside, or so the dog has somewhere to take a dump. Their house served us all well when there was 4 of us living there, but now it’s just too damn big for just my parents and their fat cat.

If my parents’ house was in Toronto, they’d be sitting on at least a half million dollar piece of real estate. If it was in the right part of Vancouver, it’d probably be worth a cool million. If they had little in other savings, they’d almost be forced to sell their house at some point.

Baby boomers all over the place will begin to run out of money at some point. Many of them have done a woeful job of planning for their retirement. Most of their net worth is tied up in one asset, and that asset is really poor at spinning off cash flow. Unless they look at renting out space in it, which I think will become more and more popular as time goes by.

As I wrote about a couple weeks ago, the strategy makes all sorts of sense for retirees. By selling their house and renting, old folks can free up hundreds of thousands of dollars in non-performing capital and put that capital to use generating income. If you add pension income, retirees have a shot at this retirement thing, assuming they don’t live to 120.

Old people have been doing this for decades now. They don’t want a huge house, because a big house becomes a pain in the ass when you get old. Cutting the grass becomes a pain in the ass, and old Mildred doesn’t want to clean rooms that aren’t being used anymore. Because there really aren’t that many seniors, this hasn’t affected real estate prices. Baby boomers were right there to snatch up these awaiting properties. Go ahead and thank your horny parents, boomers.

The problem is, as this cycle starts to repeat itself, is there aren’t nearly enough boomer kids to buy all these places. The condos are there for boomers to move into – after all, we’ve experienced one mother of a condo boom. There are other factors that will restrict my generation from buying these properties – things like debt levels and general real estate affordability. As any economics 101 student can tell you, too much supply coupled with non-existent demand is not a good thing for prices of anything.

Is there a way to profit off this? If you’re a real estate investor looking to speculate a little, buying a condo in an adult only building could be an interesting way to play this theory. You’d have terrific tenants – they’d have cash in the bank, they’d be too old to party or smoke weed, and they’d have very little incentive to move. You’d just have to make sure the place has an elevator, and you could luck out and have tenants who stay for years at a time, until they end up in the nursing home. Slap on a coat of paint, and you’d be ready to start over with the next geezer.

Will baby boomers kill the value of my house? Here’s hoping not, but I’m thinking the inevitable real estate slowdown will be long and drawn out. Feel free to argue in the comments.

 

Be Sociable, Share!

  3 Responses to “Will Demographics Kill Real Estate Prices?”

  1. I like it. Looking forward to snagging cheap property when that opportunity comes. And working in the health field, those old folks will keep me in business for a long time. I think there are actually probably so many good business opportunities coming up related to our aging population since in our society, their kids aren’t really going to be picking up the slack.

  2. I’m waiting for the commercial real estate crunch when the internet takes out most retailers.  There’s a lot of office space that could be very inexpensively converted to residential.  My office, for example, could quite easily become an apartment building – and it might actually generate more money than it does right now.  Heh..commercial property isn’t in a good place at the moment.  I think there’s reason to believe some will get converted to residential as companies scale back.

  3. [...] at Financial Uproar asks Will Demographics Kill Real Estate Prices? A somewhat contrarian view to the post above, however he has a good take on how to profit from the [...]

 Leave a Reply

(required)

(required)

Switch to our mobile site