Arizona doesn’t have enough housing — by about 270,000 units, in fact. That’s keeping costs up for new homebuyers and making it harder for young people to get into the housing market at all.
It turns out a big chunk of the houses that young families might want to buy — with three bedrooms or more — are owned by baby boomers whose family size has shrunk down to one or two people. There might have been a time most of those empty nesters would have downsized but not today.
Mark Stapp, director of Arizona State University’s real estate program and Fred E. Taylor Professor of Real Estate, joined The Show to tell us why and what it means for the Valley’s housing market overall.
Full conversation
LAUREN GILGER: Good morning. Thanks for coming in.
MARK STAPP: My pleasure.
GILGER: OK, so I've read about a quarter of these kind of family sized homes. These three bedrooms plus houses are owned by baby boomers in Phoenix today. That's a big change it sounds like from what we used to see.
STAPP: Yeah. Well, I mean, the baby boomer generation is a large percentage of our population in general and about 79% of the baby boomer generation owns their own home. And so that's not surprising to me and they were buying homes and occupying them at a time period when we were increasingly buying and building larger homes. So, you know, the quote unquote silver tsunami is one of the things that is talked about in the housing industry. is it a wave that's gonna roll over the housing industry? And all of a sudden all of these big homes are gonna become available and the answer is probably not, it's gonna happen over the next two decades actually.
GILGER: So it'll be more spread out than it may have been otherwise.
STAPP: Yeah, it's gonna be more spread out. I mean, the population that constitutes the baby boomer generation occurred over more than a decade. And so we're not all gonna get old at exactly the same time and make the same decision to sell our homes, right?
GILGER: Why aren't people downsizing as much as they used to or selling off those homes in general?
STAPP: I think there's, there's a couple of reasons for it in the current environment. One is only about 30% of the baby boomers, people over the age of 65, that own a home have a mortgage, right? So you don't have a mortgage, you don't have to make payments on your house.
And those who do have a mortgage, they're more likely to have mortgages that are low interest rate bearing. And so from just a pure economic standpoint, from a financial standpoint leaving their house is more expensive. Plus the whole idea of aging in place, they're comfortable there, they like it there. And for some of them, it's a generational thing.
What one of the things that is, is going to happen is a lot of wealth is going to be transferred to the baby boomers’ children. And a lot of that wealth is wrapped up in the houses themselves. And so I think people are staying in them longer. They're, they've got that wealth, they also don't want to sell them and realize some of the capital gains that they, they may have to pay on them. And so there's a, I think there's a number of reasons that keep people in the house and keep them off the market.
GILGER: Yeah. OK. So let's talk about the impact that that has then on the housing market more broadly because we have a supply and demand problem, right? Like we don't have enough housing if people are holding on to their homes longer for all of these very reasonable economic reasons, right? What does that mean for the housing market in general?
STAPP: This is a problem we've had, you know, we've talked about on The Show before is we simply had such a significant slowdown during the great recession and we're never able to build ourselves back up to equilibrium and I think a higher percentage of the inventory has to be added by new building. A new building has been under a lot of pressure because of cost constraints, higher interest rates that have kept people, I would call it actionable demand from actually being able to buy homes. All of those factors have kept inventory very tight.
The, the, you know, the, the concern that we're gonna dump all these houses on the market by seniors, we're probably going to see somewhere in the order of magnitude of maybe 950 homes a month. So we, we sell existing homes about, on average, somewhere around 6,000 homes a month or so. And if only 950 of those are part of that equation; it's not a tsunami at all.
GILGER: So it's gonna be slow enough. It won't have that kind of major impact.
STAPP: I, I don't think so. There's an interesting study done by a researcher out of USC, in conjunction with a researcher from Fannie Mae, looking at what they call cohort retention rates. And that is how many people in a particular age group as they move through their life remain homeowners. And that retention rates are very, very high until you get past the age of 75. And then it drops off precipitously for, you know, a bunch of obvious reasons. You just simply can't stay in the house anymore. You need care, you die. You know, the house gets now converted and it's either bequeathed,, or the family decides to sell it and sometimes they decide to keep it and rent it.
GILGER: Yeah. Yeah. So lots of implications there. It's also part of a bigger trend though we're seeing in, in general, right, Mark, and just not with boomers, but in general that, that people are holding on to their homes, not selling. Does this have to do with interest rates?
STAPP: Oh, absolutely has to do with interest rates. You know, there was such a large percentage of people that got low interest rates from 2015 on that it didn't make any economic sense to sell the house and then have to mortgage a new one at much, much, much higher rate. So you're buying a house at a higher price and you have higher mortgage payments and it's really constrained the marketplace. So the hope is the Fed begins to lower rates.
But I, I don't think that when the, if the, Fed lowers rates in September, it's probably about a quarter of a point. I don't think that that's going to roll swiftly through the marketplace. You know, this is, this got a lagging effect. I think some of it is already built into the rates, but I think it's, it's a step in the right direction. It's gonna take probably bringing rates, mortgage rates down closer to 5.5% before we're going to see a big movement.
GILGER: All right. So a little bit of time to wait there.
