The Trickle-Down Effect

Everybody's Hurting

Despite the few well-publicized bright spots in the economy, the great recession of the first decade of the 21st Century has driven unemployment, foreclosures and vacancy rate numbers higher than ever before. All of these challenges along with the behavioral changes forced upon the population are pointing toward a huge impact upon the real estate market in the US.

Americans, who have lost jobs, lost homes, and lost value in properties or have witnessed those close to them going through devastating losses, are now skittish when it comes to home ownership. The financial impact of the housing meltdown will cripple the housing industry for many years, as will the emotional impact of the extreme losses the country experienced. People are standing back, assessing, and considering the options.

Can't Afford to Retire

Even though it is time for the first-born of the Baby Boomers to retire, many have to continue working in order to rebuild and recover from their losses. The trickle-down effect of this is that younger generations have nowhere to move up to or into in the workplace to create the money they'll need to drive the demand for housing. According to the Joint Center for Housing Studies of Harvard University, the real median household incomes across all age groups under 55 have not increased since 2000. This is the first time in 40 years where real median household incomes will end lower than where they started.

Nowhere to Go

The age group that is suffering the most from this disparity is the baby bust generation - those born between 1966 and 1985 - who are heading into their prime earning years. Younger baby boomers will also be facing the reality that there will be a lack of demand from younger generations when they are ready to sell and downsize. The glut of over-building and high rates of foreclosures has ensured an over-abundance of large suburban homes for which there is zero demand or ability to purchase.

Generation Y, otherwise known as echo boomers (born 1986-2005) comprises the largest group of renters, and they are now in the prime of their rental years. However, many are jobless with no income to pay the rent. So, they are living with Mom and Dad or friends and waiting for the return of employment growth. When it finally does come, they will be a driving force in the rental market.

Boomers Can't Sell, Baby Bust Can't Buy

Add to this rather dismal mix the fact that aging boomers are reluctant to sell their homes and move into retirement communities for a couple of reasons. First, they may be drowning in their mortgage commitment and are waiting for the flood to abate in the form of a rebounding market and secondly, they will delay retirement not only because they have to, but because they're healthier than their parents' generation and can delay. It remains to be seen what the market will bear when they're ready to sell and move. The future could look very different for them given the income constraints and lifestyle demands.

All of this pressure is going to change the face of the real estate market in the coming years. According to a study by RCLCO market analysts in 2009 both retiring baby boomers and maturing echo boomers are planning to move away from the suburbs they spent their lives in and head to more urban, mixed age areas that offer services, community and the ability to get to where you want to go on foot.

Critical Housing Needs

With the current and anticipated lack of wealth facing younger generations, urban living may be a dream that is out of reach for them. Also, given the fact that cities are on to the move of the populace into the urban centers condo prices in the cities are through the roof. Generation Y may have to live in suburban areas because that is what will be affordable. What is real to everyone is that affordable housing for younger generations is a critical need. The question is: How will it be provided?