“Every Friday,” Ross says, “I play hockey with a bunch of guys who are over 55. I’m a goalie, so even though I’m not 55, they let me play – I guess it’s hard to find 55 year old guys whose knees are willing to bounce up and down off the ice for an hour and half.
“Anyways, I overheard a conversation in the dressing room last Friday that I thought I’d share with you. It’s notable because (a) it was the first time I’d ever heard it, and (b) it completely validates what you have been saying for the past few years.
“I overheard one of the older guys (over 60) mention to the guy beside him (over 70) that he and his wife were thinking about selling their family home, and renting, in order to get some of the money that was locked up in the house. The over-70 guy nodded in approval. The over-60 guy asked if he had heard of anyone doing this before, as they couldn’t see any other way to continue to fund their retirement.
“The over-70 guy nodded, and said “yup, we did it a couple of years ago. We’ve been renting now for two years – we had to do it, because we couldn’t afford the property taxes each year anymore”. So, my hat is off to you. Two old guys who cough up $5 a few times a week to fire a puck around are selling the family homesteads and renting, just like you said would happen.”
Not so fast, Ross. Listen to Teresa.
“I’ve been a loyal reader for many years now, and I’ve spoken ad nauseum to whomever with a pair of ears to not buy RE right now. This includes my parents, of course, who this week just decided to make what I believe to be a very rash decision, and I just don’t know how to explain it to them… Perhaps you can help.
“They own a nice bungalow in the Montreal suburbs in, yes, a high demand area (houses regularly sell under 30 days in the area). My mother has had enough of the cleaning, maintenance and all that is required of owning a house. My father agreed and they immediately fell in love with this spanking new condo/penthouse just a few streets down, in the same area. The penthouse is 420k for 1300 sq ft, house is worth 360k. They will roughly bag in 110k in profits, which will be used to pay off the business debts (20k) and credit cards (??) accumulated when my father was building his business. They expect to have a mortgage of roughly 360k. I have no clue how much RSP or invested money they have, but probably not that much considering the years my father slaved to build up his business. Oh, and did I mention they had just locked their 5 year mortgage this summer?
“I mentioned having a mortgage beyond 65 sounds like a bad idea, but then again my dad’s a workaholic; mortgage or not, he will work till he drops. I don’t want to play the bad daughter here, but I find this all a bit too quick and rash, considering it’s a huge decision. They are just coming out of the debt tunnel and now this? I wish they would decide to rent and put as much money as possible into their savings, but I’m running out of arguments here. Can you please help me find the words?”
I juxtapose these letters for a reason. Real estate’s soon to be massively impacted by what the Boomers do, and it will not be monolithic. Some will downsize. Some will croak shoveling. Others will bail. Because most of them are just hitting 60 now (half a million a year for the next seven), there’s no template for what happens next. Nobody’s gone through it.
What we do know is that seven in ten will have no pension (other than the crumbs government gives), over 40% don’t have even a hundred grand saved and 78% own real estate. We also know the wrinklies make up 32% of the population.
That’s a higher proportion than in the US, where there’s a lot of talk about the coming “great senior sell-off.” It’s expected to start later this decade and usher in the next monumental housing crash, about 2020. Hmm. Seven years from now – not exactly the news you need if you’re 36 years old and shouldering a $450,000 mortgage.
One problem is way too many of the wrong kinds of houses. Just over 80% of all new builds in the last two decades across North America were single-family homes, mostly big and mostly in the burbs. There just aren’t enough young families in the demographic pipeline to suck up all that supply. And even if just a third of the Boomers try to convert their properties into much-needed cash flow, the market will be swamped. Prices will reflect that. Real estate as an asset class has a very poor future, no matter how cheap mortgages may get.
Ross’ hockey buddies are early adapters. Each year going forward there’ll be tens of thousands of new listings across the country from people who face a bleak retirement. If you’re a wrinklie, the longer you wait the greater the risk you’ll be selling for pennies on the dollars you expected.
Now, Teresa. What about her newly-mortgaged parents and their fancy digs? These cash-poor seniors have taken out a fat, 25-year mortgage that (statistically) they’ll never live long enough to pay off. They have diddly in the way of savings, no pension, and not enough money coming out of the house to invest and live off.
And yet here they are, moving into a luxury, spanking-new, sexy, spacious, hedonistic, penthouse condo.
So much for that inheritance. Damn hippies.