Downsizing is now the main reason people sell their homes as growing numbers hunt for a smaller property in an attempt to cut their bills and boost their income
When my son started going to college a couple of years back,
I was surprised to know the majority of his classmates bought a daily coffee
and a muffin, or breakfast sandwich from either Barista or Starbucks at Kamla
Nagar. Additionally, and this is no exaggeration, about 50% also purchased
lunch from KFC or McDonald’s daily. For us, Chacha’s chhole-bhature was the ultimate but times have changed and people
are very wasteful now. The implications should be obvious, but aren’t to most
millennials (Born 1979 – 1996), 70% of whom have smart phones, but no savings. I
don’t think the millennials will be collecting a pension at all. I will be
surprised if Gen-X (Born 1965 – 1978) collects either. I don’t and that’s a
whole lot of problem. The asset-rich, time-rich fiftysomethings are the last of
the good-time generation. So what’s the story?
The year 2015 represents a confluence of economic and demographic occurrences. The last of the Baby Boomers (Born 1946 – 1964) have turned 50, which means that Generation X is on the eve of the mid-century milestone birthday. What does this say about real estate? For starters, real estate is demographically doomed. With an aging population in financially strapped times, demand and prices are destined to fall. If there was a survey today of Gen-X most of whom are in denial, it will show a large number of them understand they’ll have to downsize their property in order to raise cash for living expenses. Downsizing usually involves selling your existing property, using the spare equity to buy somewhere smaller and cheaper and banking any profit on the transaction. Although people traditionally consider downsizing as they approach retirement, growing numbers of younger homeowners are doing it as well. That only makes sense. Over 70% don’t have defined-benefit corporate pensions, and have saved a quarter of what will be needed to survive 25 years without working. They’re house-rich and financial asset-poor, not to mention unbalanced, non-diversified and potentially illiquid. The big need in the years to come will be income, not enough garage for two cars. The millennials would be fools to expect their lives to unfold as carbon copies of their parents’. Most Gen-Xers, on the other hand, plan to work past age 65 and continue working, at least on a part-time basis. Good luck to all those who think they can carry consumer debt into their sixties (and later) and just keep working, never having to face a day of real estate/debt reckoning. Truth, however, is that those who are not financially prepared to retire typically and say they will work longer to compensate, unfortunately may not have that choice. Simply because health issues will greatly interfere with their planned retirement age! The longer life that Boomers are likely to live will likely result in lots of time (and money spent) for long term care, unless they are able to keep their health right up to the day the Grim Reaper drops by. At some point, possibly soon, there will be a tipping point where the boomers who haven’t prepared for retirement will list their homes en masse to cash in for their golden years. It’s also true that more people are realising they don’t want to fully retire. Sitting around watching TV all day or playing golf five times a week can get boring. People want meaningful lives in their golden years, which you can only get from working, providing a service to other people, so they often re-enter the workforce part-time, consulting or running a business. This is already happening with the Boomers. That said, I suspect we’re heading towards some pretty tricky times. Wealth is simply getting too concentrated to support consumer spending. Basically every country and the majority of citizens in every country are in huge debt. Businesses are having trouble finding profitable investing areas since the demand is so low that it’s better to just sit on the cash. We may not wind up with a Great Depression, but I suspect we’re still going to eventually have to wind up with a new New Deal. Let’s not forget that a large number of our kids are graduating from private universities with debt, and little chance of securing a decent paying job. Unless there is a major shift, credit is all they will know. Nothing is more depressing than seeing those living at home until 30 to buy a flat of their own. Not that they don’t want to work, in fact, a lot of millennials are desperate for good work. But to be honest, it’s a little thin out there. Another note, no one can foresee 40 years from now. Look back 40 years, we had no internet, looming nuclear holocaust. Focus on the near term, and save a bit when you can. Debt, after all, can be longer lasting than Viagra.
The year 2015 represents a confluence of economic and demographic occurrences. The last of the Baby Boomers (Born 1946 – 1964) have turned 50, which means that Generation X is on the eve of the mid-century milestone birthday. What does this say about real estate? For starters, real estate is demographically doomed. With an aging population in financially strapped times, demand and prices are destined to fall. If there was a survey today of Gen-X most of whom are in denial, it will show a large number of them understand they’ll have to downsize their property in order to raise cash for living expenses. Downsizing usually involves selling your existing property, using the spare equity to buy somewhere smaller and cheaper and banking any profit on the transaction. Although people traditionally consider downsizing as they approach retirement, growing numbers of younger homeowners are doing it as well. That only makes sense. Over 70% don’t have defined-benefit corporate pensions, and have saved a quarter of what will be needed to survive 25 years without working. They’re house-rich and financial asset-poor, not to mention unbalanced, non-diversified and potentially illiquid. The big need in the years to come will be income, not enough garage for two cars. The millennials would be fools to expect their lives to unfold as carbon copies of their parents’. Most Gen-Xers, on the other hand, plan to work past age 65 and continue working, at least on a part-time basis. Good luck to all those who think they can carry consumer debt into their sixties (and later) and just keep working, never having to face a day of real estate/debt reckoning. Truth, however, is that those who are not financially prepared to retire typically and say they will work longer to compensate, unfortunately may not have that choice. Simply because health issues will greatly interfere with their planned retirement age! The longer life that Boomers are likely to live will likely result in lots of time (and money spent) for long term care, unless they are able to keep their health right up to the day the Grim Reaper drops by. At some point, possibly soon, there will be a tipping point where the boomers who haven’t prepared for retirement will list their homes en masse to cash in for their golden years. It’s also true that more people are realising they don’t want to fully retire. Sitting around watching TV all day or playing golf five times a week can get boring. People want meaningful lives in their golden years, which you can only get from working, providing a service to other people, so they often re-enter the workforce part-time, consulting or running a business. This is already happening with the Boomers. That said, I suspect we’re heading towards some pretty tricky times. Wealth is simply getting too concentrated to support consumer spending. Basically every country and the majority of citizens in every country are in huge debt. Businesses are having trouble finding profitable investing areas since the demand is so low that it’s better to just sit on the cash. We may not wind up with a Great Depression, but I suspect we’re still going to eventually have to wind up with a new New Deal. Let’s not forget that a large number of our kids are graduating from private universities with debt, and little chance of securing a decent paying job. Unless there is a major shift, credit is all they will know. Nothing is more depressing than seeing those living at home until 30 to buy a flat of their own. Not that they don’t want to work, in fact, a lot of millennials are desperate for good work. But to be honest, it’s a little thin out there. Another note, no one can foresee 40 years from now. Look back 40 years, we had no internet, looming nuclear holocaust. Focus on the near term, and save a bit when you can. Debt, after all, can be longer lasting than Viagra.
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