Will Baby Boomers Rock the Housing Market?

baby boomer housingAs first-time buyers struggle with higher hurdles at the bank, some experts are pinning their hopes on baby boomers to boost the flagging housing market.

Roughly defined as the generation bookended by the close of World War II and the rise of the civil rights movement, baby boomers -- ages 47 to 65 -- are in a better position to buy today than they have been in years, says Walt Molony, a spokesman for the National Association of Realtors.

According to the group's Housing Affordability Index -- which measures how much house a family making the national median income can buy in today's market -- affordability is near an all-time high, Molony says. In July, the index climbed to 176.9, meaning that a family making a 20 percent down payment can comfortably afford a house that costs 176 percent more than the national median (about $175,000 in July). To give some context, the index topped out at just 137 in 2008; in 1981, the peak was an unthinkably low 68.

Click the thumbnails below for a peek at what boomers are buying today.

Because the index only considers buyers making a hefty 20 percent down payment, Molony says the data "broadly captures" the buying power of the boomer generation. In other words, with affordability at record highs, boomers should be right in the middle of bailing this generation out of the housing morass.

But that's not the case -- at least not yet, anyway. The problem lies with those meddlesome Gen-Xers. As long as Junior can't score a mortgage in today's restrictive lending environment, the boomer buying spree may have to wait.

"The roadblock is really with first-time buyers," Molony says. "And many of them are being thwarted by credit issues."

Stricter lending, low appraisals and high foreclosure rates -- all of these impediments make it more difficult for first-timers to buy, and less likely that repeat buyers can unload their current homes. And since most owners can only afford to move once this swap occurs, no amount of bargain-baiting can convince them to buy sooner -- even as affordability nears historic levels.

So Why Bet on Boomers?

Even so, boomers are nonetheless poised to reinvigorate the housing market for two important reasons. Since most homeowners of middle age and older have lived in their homes for several years, they have a far larger home equity cushion to fall back on -- a luxury that many first-time buyers who purchased during the housing boom lack. Unlike many younger home buyers, boomers can also tap into their home equity to take out a reverse mortgage in a pinch. Second, and most important for the ailing home building industry, the generation that put a man on the moon has some very persnickety tastes.

baby boomer down payment"Boomers are looking for something different. They want to change their lifestyle," says Sharon Dworkin Bell, senior vice president of the 50+ Housing Council at the National Association of Home Builders.

Across the board, ease of living drives many of the boomers' biggest housing asks. In the most recent survey on boomer buying habits from the Met Life Mature Market Institute and National Association of Home Builders, 61 percent of boomers who moved into "age-qualified" homes (where the community's minimum age requirement is 55 or older) said that they chose their new home based on the layout of the rooms.

The same was true for those living in non-age-restricted communities -- the vast majority of boomers -- with nearly two-thirds of respondents (62 percent) saying that room layout was their biggest reason for buying. In practice, many boomers are looking for single-story homes, where the master bedroom is on the first floor, says Bell. (Read more about boomer buyer habits in this NAHB survey.)

Couple these findings with the fact that households in the over-55 demographic account for almost a quarter of all new custom-home purchases, and you find an outsize market of buyers ready to move the needle in the right direction.

At last count, there were 39.5 million 55-plus households in America -- more than a third of the total households in the nation. Moreover, households in that age group account for about 12 percent of the households that change addresses in a given year, according to the Mature Market Institute report.

Recovery on Hold

So why haven't builders done more to cater to boomers? It's not for lack of trying, says Molony.

Home builders are contending with a huge overhang of existing homes on the market, and having a harder time getting banks to sign off on construction loans, he says. To make matters worse, austere appraisal standards since the bubble burst have led to situations in which newly built homes are being appraised for less than what it cost to build.

"It's kind of hard to make a profit in that environment," he says wryly.

Still, the impact that boomers are having on the market is already being felt. First-time homebuyers -- who are typically considered the backbone of a healthy market -- purchased only 35 percent of homes in the second quarter of 2011, according to the NAR. That's down from 46 percent in the same period in 2010.

Meanwhile, repeat buyers jumped to 56 percent of the market share, up from 40 percent the year before. And, not surprisingly, a majority of repeat buyers (62 percent) are 45 or older.

So while a full housing rebound may still be years away, when it does take hold, says Bell, we'll know who to look to.

"When the recovery starts," she says, the boomer segment "will be the one that moves fastest."

From that vantage, it's not a matter of how the boomer generation will impact the housing revival, but when.

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