Will the Baby Boomers Doom Housing Prices?

March 30, 2011

Interesting article below.  It looks like housing in the northeast may be vulnerable to price pressures since it tends to be expensive and a lot of the baby boomers will be moving towards the sun belt once they retire soon.

Wednesday, December 15, 2010

The Next Housing Bubble – Is This the Perfect Storm?

In surfing the tubes that make up the internet (my apologies to the late Senator from Alaska), I happened upon this article from the Journal of the American Planning Association.  The article is entitled “Aging Baby Boomers and the Generational Housing Bubble“.  It is a fascinating analysis of what could bring a fatal blow to the idea that our houses will form the bulk of our assets as those of us that are baby boomers enter our retirement years.  Unlike the short-term “temporary” meltdown in house prices created by the subprime mortgage issue of the past two years, this long-term demographic price correction could have a permanent impact on the housing market.  While this study is specific to the United States, its overall conclusions apply to any country in the world where a long-term surge in births was noted immediately after the end of World War II.
Traditionally, the generation that parented baby boomers has watched house prices rise, at times seemingly exponentially, and have sold their homes at prices that are often orders of magnitude more than what they paid for them decades earlier.  In large part, the sale of these assets has provided funds for their retirement years.  As baby boomers, we have learned this lesson (perhaps a bit too well) and have patterned much of our financial planning with a similar target in mind.  Sure saving money from our weekly paycheques is a good idea but it’s hard work and requires discipline and, after all, we can count on using the equity we have in our homes to make up the difference between what we save and what we need to retire with very little effort on our part.  After all, house prices have nowhere to go but up….eventually.
This study by Dowell Myers, a professor at the Univeristy of Southern California School of Policy, Planning and Development and co-authored by SungHo Ryu studied the relationship between the 78 million baby boomers and the housing market and what effects aging baby boomers will have on the housing market in the United States as they retire, relocate, downsize and eventually leave the housing market.  The large numbers of this cohort has largely driven the real estate market since they first entered it in the early 1970s; burgeoning demand for homes drove prices and inventories ever higher seemingly unendingly, especially if one listens to real estate associations.
According to the study, sales of existing homes make up 85 percent of the homes sold today.  Senior citizens are by and large the suppliers to the housing market as they downsize, move into senior’s residences or pass away.  Those over 65 years are proportionately more likely to own their own homes in comparison to younger adults so they are more likely to have houses to sell.  The first baby boomers are slated to reach their retirement years at the age of 65 in 2011 and the last will pass through the “gate” to seniorhood in 2029 so it seems likely that the effects of this demographic change on the real estate market will be seen sooner rather than later.  As well, a decrease in the number of younger, first-time home buyers means that the housing market will feel additional stress from shrinking demand at the same time as it faces rapidly growing supply.  This does not bode well for prices since the supply of available housing will be increasing at the same time as the demand for that housing is decreasing.
Here is a chart from the United States Census Bureau showing the projected changes to the demography of the United States over time for the years 2010, 2030 and 2050:
Notice how the bulge in the population age pyramid travels upwards particularly in the 2030 projection?  This indicates an overall aging of the population as the baby boomers reach their senior years.  Also note that for the 2030 projection, the number of people in the age groups under 45 years of age increases much less in proportion to those who are over 65.  From a housing perspective, that means that there are fewer people that will be entering the housing market than those who will be leaving.
Here’s another chart showing what percentage of the population will be over 65 by state comparing the year 2000 to projections for the year 2010 and 2030:
Notice that the overall nationwide over 65 population only increases from 12.4 percent to 13 percent in 2010 because the baby boomers have not yet reached that age bracket.  The big change occurs after 2010 and the U.S. Census Bureau projects that the percentage of those over 65 will rise to 19.7 percent of the total population.  Some states will be more affected than others; Florida, Maine, Wyoming, New Mexico, Montana and North Dakota will each have more than one quarter of their populations being aged 65 and over.  That will have a major impact on their local housing markets.  Data from the Centres for Disease Control puts life expectancy at birth at 77.9 years in their latest study that examines all deaths in the United States for the year 2007.  This tells us that it is most likely that the baby boomers that reach the age of 65 in 2011 will most likely not be around by 2029 when the last of the boomers reach 65 years of age.  Those senior boomers who own houses in 2011 will in all likelihood not own homes by 2029 which is part of the supply problem.
Another factor that is affecting home ownership by the generation following the boomer generation is the  lack of affordability especially when one compares median house prices to median income level.  Dr. Myers gives the example of house prices in New Jersey where the median house price to median household income multiple rose from 2.89 in 2000 to 5.00 times the income of young adult households by the year 2005.  Some states showed much greater ratios of median home values to median incomes of household heads between the ages of 30 and 34, California, Hawaii, Nevada, New Jersey, Rhode Island and Massachusetts being particularly problematic in 2005.  There is no doubt that the recent decline in housing prices has improved affordability in these markets but houses are still unaffordable for many families that are in their prime home purchasing years.  For further information on housing affordability, I highly recommend the 6th Annual Demographia International Housing Affordability Study 2010 which shows which parts of the United States have the least affordable housing as measured by a multiple of median price to median income.
What is rather critical to Dr. Myers’ thesis is the crossover point where selling of homes exceeds buying.  The problem will be most severe in states where the older population is large and sells their homes at a young age and where the population of young buyers is growing slowly or is stagnant.  From the study, it appears that the northeastern states are the ones where older homeowners sell in greater numbers than younger homeowners buy as shown in this chart:
Baby boomers were born over an 18 year period of time; it is likely that the housing sell-off (and accompanying price declines) that takes place will take far longer than a normal correction in the housing market, most particularly when compared to the price decline seen in the past 2 to 3 years.  The baby boomers born in the late 1950s and early 1960s are likely to suffer the greatest price drops since, by the time they are ready to sell their homes, the supply of real estate for sale will be approaching its peak.
Home equity forms a very important part in the retirement savings of many American households and real estate is more widely held as an financial asset by Americans than other asset.  While it is comforting to think that the equity that we have built up in our homes is the key to a secure retirement, shifts in the demography of nations in Europe, the South Pacific and North America may prove that paradigm to be a fallacy.
Posted by A Political Junkie at 11:01 AM


Don Levit said…

Very interesting article. I am particularly interested in the statistics for median household prices versus median household incomes.
Do you think a similar dynamic could occur with stocks as baby boomers, supposedly, start to cash in stocks for bonds and “less risky” investments?
Don Levit

December 15, 2010 1:59 PM

firststreetonline said…

Definitely some interesting numbers, both what was expected and predicted. You definitely have some good analytical skills, thanks for sharing!

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December 15, 2010 4:17 PM

A Political Junkie said…

Thanks Don. Yes, I suspect that your suggestion that stocks could be a casualty of the demographic shift is correct. Boomers, myself included, are already looking to moderate the risks in our portfolio particularly after the 2008 – 2009 experience. We’ll be looking to reduce the risk of losing our capital and, in part, that’s why I think that as people pile into bonds, the prices will be pushed up and the bubble in the bond market may not be as severe as some analysts propose.

But then again, who really knows!

December 15, 2010 5:14 PM

Don Levit said…

A political Junkie:
I am thinking of moving a good portion of my money out of the stock market into indexed annuities.
If the S&P rises, you capture a portion of the gain.
If it falls, you lose zero, and start from a lower base the next year.
You also are guaranteed a 3% return.
Any one have experiences with these products before?
Seems to me a pretty good fit, for I believe the stock market is going to go up and down like a yo yo.
Don Levit

December 15, 2010 7:46 PM

A Political Junkie said…

Sorry Don, I don’t know anything about indexed annuities. I agree about the yo-yoing market and am taking some profits where I’ve had a return that I’m happy with.

December 15, 2010 7:52 PM
Anonymous said…
Interesting comparisons of various levels of ages, etc. of humans available to buy/sell houses.

I would like some genuinely knowledgeable economists/experts (if such an oxymoron exists) to explain one overriding factor to me. I have always felt that with population constantly increasing, housing creation must constantly meet the demand for the net increase in people who will actually use (live in) those properties. Housing additions to the overall inventory would have to match population increase needs, plus replacements of homes disposed of by simply tearing down or fire or any other reduction in the properties.
Is this not true?
I guess this assumption could be wrong, but I feel housing “shortages” and “bubbles” are primarily a supply/demand thing caused by overbuilding compared to the need for net increase in housing inventory, or underbuilding in periods such as the current situation where real estate has completely lost it’s luster.
Can anyone out there explain to me why or why not this assumption is correct?

December 16, 2010 12:15 PM

Don Levit said…

My perspective is that there are financial limits of the demand/supply function, due to affordability.
For example, I have read material (I may not have kept it), which documented the median price of homes versus median household incomes.
Back in the 1950s, the median household income for the year covered the median price for the home.
This dynamic became more expensive, as today we are looking at median household income of $50,000 versus a media priced home of $150,000, or a 3 to 1 ratio.
That considers many households have 2 incomes as opposed to one in the 1950s, and fewer kids per household today versus the 1950s.
With group family health premiums around $13,000 per year, that’s almost like a second mortgage payment in and of itself.
Don Levit

December 16, 2010 6:19 PM
Anonymous said…
I just read this blog for the first time, and am thoroughly impressed. Your analysis hits on a number of key variables, and touches on the baby boomers destruction of their own retirement through their refusal to address income disparity. Have you written on income disparity?

December 17, 2010 7:37 PM

A Political Junkie said…

Thanks. No I haven’t written on income disparity but am willing to look into it. By income disparity, do you mean the changes in income from working life to retired life?

My next posting on baby boomer impact on the economy will give my impressions of what I think will happen to both the stock market and the bond market as boomers reduce risk in their portfolios – time permitting of course.

December 17, 2010 7:45 PM
Steve said…
I think your analysis fails to address an important issue regarding the overall population. I agree that the average age of the population is increasing and the Boomers will undoubtedly be moving out of their homes over the next few decades. However, the the census bureau graph clearly indicates the overall population will continue to increase for every age group in the upcoming decades. Your analysis makes it sound as if there will be a huge glut of homes; more homes than there are people to live in them. This is simply not the case according to the chart. If Americans were to build no new houses over the upcoming decades, there would be an epic housing shortage. Clearly, building will be required to keep up with demand. This makes it unlikely that any sort of long term market downturn will occur.


Starting Early

March 30, 2011

I am not sure if this article is funny or sad:


Beauty Pageant Mother Injects 8-Year-Old Daughter with Botox and Takes Her Waxing

posted by: Ximena Ramirez 3 days ago
Beauty Pageant Mother Injects 8-Year-Old Daughter with Botox and Takes Her Waxing

For their eighth birthdays I imagine most little girls want a bicycle or a doll or maybe even in this day in age a cell phone, but Botox injections?

According to The Sun, “beauty-pageant obsessed single mum” Kerry Campbell gifted her daughter Britney with Botox injections for her eighth birthday last year. Botox injections are now a regular part of Britney’s beauty regime – once every three months – which also includes waxing.

We’ve often worried about the sexualization of girls at younger and younger ages, especially those competing in beauty pageants. Botox injections and waxing take it to a whole new level of concern, but Kerry does not see it like that at all. In fact, she would argue that she is helping pave her daughter’s way to Hollywood ensuring a life of fame and fortune:

“I know one day she [Britney] will be a model, actress or singer, and having these treatments now will ensure she stays looking younger and baby-faced for longer.”

“All I want is for Britney to have the best start in life, so it is easier for her to become a superstar.”

“She is a lucky little girl and is going to be famous because of the benefits I am giving her so early.”

“When she’s a superstar earning millions, she’ll always be grateful for what I did when she was so young.”

And what does Britney have to say about her detailed beauty regime?

“My friends think it’s cool I have all the treatments and they want to be like me, says Britney. “I check every night for wrinkles, when I see some I want more injections. They used to hurt, but now I don’t cry that much…I also want a boob and nose job soon, so that I can be a star.”

How will Britney ever develop a healthy self-image if she is looking for wrinkles and thinking about a breast and nose job at 8-years-old? How will she ever learn to accept and appreciate her body if she’s given a quick “fix” – botox, waxing, plastic surgery – for every “problem” area she finds?

And what about the health risks of injecting Botox at such a young age?

Doctors and plastic surgeons recommend that only adults use Botox, but Kerry purchases Botox and Restalyne over the internet and uses a home-assembled kit of needles from the local pharmacy and a diabetic friend.

This does not sound safe or legal but according to The Sun there are no criminal laws preventing parents from doing this. If this is becoming a trend among beauty pageant parents, like Kerry suggests in her interview with The Sun, serious consideration is needed to protect children so they can actually be children – not frozen version of themselves with a lifetime’s worth of crippling self-esteem.

Ingredients to Avoid

March 30, 2011

Know the ingredients in your personal care products


Better products are truthful in their marketing claims and free of potentially worrisome ingredients. Some products might make claims like “gentle” or “natural,” but since the government does not require safety testing, personal care product manufacturers can use almost any chemical they want, regardless of risks.

How to read a label
Every personal care product must list its ingredients. Here’s how to navigate the label:

  • Start at the end, with preservatives. Avoid:
    • Words ending in “paraben”
    • DMDM hydantoin
    • Imidazolidinyl urea
    • Methylchloroisothiazolinone
    • Methylisothiazolinone
    • Triclosan
    • Triclocarban
    • Triethanolamine (or “TEA”)
  • Check the beginning of the ingredients lists, where soaps, surfactants, and lubricants show up. Try to avoid ingredients that start with “PEG” or have an “-eth” in the middle (e.g., sodium laureth sulfate).
  • Read the ingredients in the middle. Look for these words: “FRAGRANCE,” “FD&C,” or “D&C.”

For grown-ups
Many parents pay more attention to their kids’ environmental health than their own, but adult bodies can be affected by toxic chemicals, too. EWG’s Safer Shopping List has nine common-sense tips to reduce everyone’s exposures. For instance, buy fragrance-free, skip the nail polish and use fewer products.

Just for kids
Extra caution is in order for kids because, pound for pound, they are exposed to more contaminants in everyday products than adults. Their immature metabolism and organ systems are typically less capable of fending off chemical assaults. Even subtle damage to young bodies can lead to disease later in life.

Follow EWG’s top five tips for kids:

  1. Use fewer products and use them less often.
  2. Don’t trust ad hype. Check ingredients.
  3. Buy fragrance-free products.
  4. Avoid the use of baby powder.
  5. Always avoid EWG’s top six chemicals of concern for kids:
    • 2-Bromo-2-Nitropropane-1,3 Diol
    • BHA
    • Boric acid and sodium borate
    • DMDM Hydantoin
    • Oxybenzone
    • Triclosan

The housing bubble

March 29, 2011

The whole mortgage debacle is a classic case of greed and corruption gone wild.  The causes of the crisis are:

-Interest rates kept artificially low by the FED to juice the economy in the short term.  Since putting savings in the bank is stupid (with interest rates below the rate of inflation) people look for other investments, thus we have had the internet bubble, the property bubble, and now the commodities bubble.  If interest rates had been set by the market, they would have been higher which would have cooled the housing bubble and made bank savings more attractive.

-Repeal of Glass-Stiegel and a collapse of proper regulation due to banks buying politicians and regulatory agencies, so no effective oversight.

-The Community Reinvestment Act, the bailout of S&L and Long Term Capital Management and the government backing Freddie and Fanny, all distorted the market and helped to foment massive moral hazard.

-Greedy property buyers who thought that all they had to do was buy a house and flip it or refinance, and they would be on easy street.  And they did for many years until the bubble popped and people got caught massively being over extended.

-The whole financial industry which peddled unsustainable loans to greedy buyers.

-The regulatory agencies which utterly failed to do their job of accurately assessing risk.

-The media and politicians who constantly cheered the whole process on with giddy delight.

In sum, it was a perfect storm of greed and corruption, and once the whole process got started so many people were making so much money of off it that no one wanted to blow the whistle and spoil the great party.  The politicians, the media, the banks, the public, everyone was in on it and cheering it on.  The few lone voices at the time who pointed out the obvious-that it was unsustainable-were sidelined and ridiculed.

Now that the house of cards has come tumbling down, everyone who participated in the debacle wants to be bailed out by the responsible people who lived within their means.  The politicians of course have not taken responsibility and have made matters worse by bailing everyone out with money we don´t have.  The banks acted recklessly and have been rewarded for the temerity with massive government supports (so we can have more moral hazard).

Finally property owners wail and moan about losing a house that they never owned outright and should have never bought in the first place.  I have some sympathy for people who may have unexpectedly fallen on hard times and cannot make their payments, but huge numbers of people bought houses with absurd mortgages-in other words completely speculative properties hoping to flip them before the real mortgage payments kicked in.  They knew that they could not make the payments normally, but with teaser rates they could hold on for a couple of years just long enough to flip the property and make a killing.  Others got caught up in the hype and mania and figured that real estate was so lucrative the one could never go wrong buying no matter what the math said.  In sum a tale of greed and stupidity.  Now the people who bought these ridiculously speculative investments are surprised and indignant that housing prices have actually gone down, as if assets in a bubble can only go up.  Furthermore, they demand that the government bail them out or suspend foreclosures so they can live in a house that they don´t own for free.  Like with the banks it has privatized profits and socialized losses. There seems to be this mentality in America that once people buy a house they belong to a special privileged class which entitles them to live in houses that they have not paid for.  No one worries if stock purchases are underwater, or if renters are thrown out for not paying the rent, but apparently it is unacceptable for houses to drop in value and for people to lose a house that they cannot pay for.  I have an idea.  Let the government rescue the property owners, IF the property owners agree to give back all the money they made during the good years.  I suppose that the mentality of the hype is still with us and we are having a hard time adjusting the reality.

But adjust to reality we must.  The government´s efforts to artificially keep housing prices high (Federal Housing Authority Loans, Tax Deductions) is just delaying the inevitable with money that we don´t have.  The sooner we get to real market prices the better it will be.  We will have to accept that all that money that was made during the bubble will have to be lost by someone else.  I say let´s bite the bullet and accept the pain now so we can get past it, rather than to drag the whole painful process out for years to come.

More on the Medical Racket

March 26, 2011

I got this from the internet.  It has become clear that our medical system has purposely limited itself to meds and surgery because that it what is profitable, while ignoring alternative treatments.  So many conditions can be treated simply by small changes in lifestyle, exercise, mental focus and nuitrition.


Shocking Confessions of a
Drug Company Insider
The plot of this story seems to be ripped from the headlines … or maybe a  movie about a big conspiracy or a cover-up of foul play … just like the Oscar award-winning “The Insider.” 

But the story is 100% true.

Doctor's Confession In 2003, a top executive of the pharmaceutical giant Glaxo-SmithKline — worldwide Vice President of genetics — confessed that “The vast majority of drugs — more than 90% — only work in 30 or 50% of the people.”

What that means is … most prescription drugs DON’T work on most people who take them!

Dr. Allen Roses is the pharmaceutical industry insider who made this shocking confession.  Although it’s been an open secret within the pharmaceutical industry that most of the drugs it produces are ineffective in most patients, this is the first time that a high-ranking pharmaceutical executive has gone public.

Some industry analysts said that the confession of Dr. Roses is reminiscent of the famous words uttered by Gerald Ratner, a British retail magnate in 1991, who said that his high-street shops are successful because they sell “total crap.”

But it’s one thing for a company to sell worthless products … and it’s another thing altogether to sell worthless products that kill instead of heal.

FACT:  In the U.S., the odds of being killed by conventional medicine are almost 20 times (2,000%) greater than being killed in an automobile accident and almost 30 times (3,000%) greater than being killed by a gun.

It’s no wonder that the majority of doctors are frustrated.  They entered the medical profession wanting to cure people — but the only tools that medical school training provides them for treating patients are … drugs and surgery.

Doctors have been thrust headlong into a marketing culture that relies on selling as many drugs as possible to the widest number of patients.  It’s a culture that has made Big Pharma the most profitable industry in the world — even though most of its drugs are useless, at best — and even possibly harmful or deadly for many patients.

Dr. Roses, an academic geneticist from Duke University in North Carolina, further states:  “Drugs for Alzheimer’s disease work in fewer than one in three patients, whereas those for cancer are only effective in a quarter of patients.  Drugs for migraines, for osteoporosis, and arthritis work in about half the patients.”

The growing sentiment among doctors is that they want to offer their patients more treatment choices for curing disease than the medical system offers.

Our Food Supply

March 25, 2011

Antibiotic abuse linked to Obesity

March 24, 2011

Are Antibiotics Making You Fat?

Dear Reader,

I’m not a fan of antibiotics.

OK, to be clear, it’s not really the antibiotics I hate—it’s the overuse and abuse of them by lazy or overworked doctors and corporate farming operations that really get my goat.

I wrote to you before…on a number of occasions…about the dangerous, and sometimes even deadly fallout from the misuse of these powerful drugs. But just when I think everything that needs to be said on the subject…covering allergies to superbugs…has been said, along comes some new information that has me fuming and at my keyboard while writing to you once again about the devastating effects of antibiotic abuse.

It turns out that antibiotics may be making you, and your kids, fat.

Let me back up for a moment and say that obesity is a complex issue and that no single cause for all cases will ever be found. A poor diet and lack of exercise certainly play an important part in the rising epidemic. But evidence is mounting that our heavy use of antibiotics is also playing a starring roll in a significant percentage of cases.

Recently, microbiologist Dr. Martin Blaser spoke on the issue of antibiotics and obesity at the International Human Microbiome Congress in Vancouver. Dr. Blaser revealed how current experiments he’s conducting on laboratory mice are demonstrating that low-level antibiotics…similar to the regular dosing given to livestock on corporate-farm feed lots…can boost mouse fat by a staggering 40%.

And as if that weren’t shocking enough he also has found that when he combines the low-dose antibiotics with a high-fat diet the jump in fat can skyrocket up to 300%!

The leading theory about why antibiotics have this effect boils down to one thing, gut bacteria… or rather the lack of it once antibiotics wreak havoc on your tummy flora.

You see, when antibiotics go to work they kill off not only disease-causing bacteria but they also destroy the normal gut bacteria that, among other things, help your body metabolize fats. When that process breaks down, you get fat accumulation.

For an illustration of this effect, you don’t need to look any further than those feed lots I mentioned earlier. Any good corporate farmer worth his salt knows that one of the very best ways to fatten up your pigs and chickens fast is to pump them full of antibiotics.

When you combine the antibiotics found in our food supply with the fact that…according to Dr. Blaser…most children in the United States are getting on average 15 courses of antibiotics in their first 15 years alone, you begin to see the problem we have on our hands…and around our bellies.

The takeaways on this one seem pretty clear. Cut back on prescription antibiotic use—substituting natural alternatives whenever possible. Make the switch to organic antibiotic-free meats. And supplement your likely already compromised gut flora with a quality probiotic supplement.