Last Cast Letter #14: The Boomer Butterfly Effect

How American Boomers impact home-buying in Barcelona.

Hi All - Happy Thursday. It’s the last day of the month which means it’s time for the Last Cast Letter.

We had 110 new people join this letter since I published it last. First of all, welcome. Secondly, don’t forget to fill out our investor form.

Today we’re taking a look at how American Boomers are making it hard for local families in Barcelona to buy a home. Not really, but as I was writing this, that thought came to me and you’ll have to let me know if I did a good job connecting the dots.

In reality, what we’re examining today is a frustrating trend if you’re young, live in the US, and you want to buy a home. That is: today's homeowners are now residing in their homes for twice as long as they did in 2005, a trend primarily fueled by older Americans choosing to age in place.

Homeowner Tenure Ticking Up

Twenty years ago, in the early 2000s, the average American homeowner stayed in their house for 6.5 years. Now, that figure is clocking in at almost 12 years. 11.9 to be exact. Why? Blame the boomers.

According to an analysis from Redfin nearly 40% of baby boomers have rooted themselves in their homes for a solid two decades, while another 16% have settled in for a decade or more. For Gen Xers, over a third (35%) have called the same place home for at least a decade.

Unsurprisingly, Millennials tend to stay in their homes for a shorter amount of time. A mere 7% of this generation have the bragging rights of a decade-long homestead, while 13% have comfortably settled in for 5-9 years. The majority, 30%, are relatively fresh to the homeownership game, having lived in their home for less than five years.

So Why Are Boomers Staying Put?

It's pretty straightforward actually. They’re not financially incentivized to move.

According to Redfin, a solid majority (54%) of baby boomers who are homeowners can proudly say they own their homes outright, mortgage-free. For this fortunate group, the median monthly expenses for homeownership—covering insurance, property taxes, and other essentials—hover just above $600.

And of course, high rates factor into the picture. Almost every boomer who still carries a mortgage benefits from a significantly lower interest rate compared to what they would face if they were to sell and purchase a new home at today's rates, which hover around 7%. Would you want to trade a 3% mortgage for a 7% mortgage? Me neither.

Additionally, Certain state tax systems offer incentives for homeowners to age in place. In Texas, homeowners aged 65 and above can postpone property tax payments until they sell their homes, while in California, Proposition 13 serves to cap property tax hikes, providing financial relief for homeowners as they grow older.

Lastly, a significant portion of older Americans want to age within the familiarity of their family homes rather than relocating or considering assisted-living facilities. According to a recent survey, nearly 90% of individuals aged 50 to 80 express the importance of remaining in their homes as they age. With advancements in both medical care and technology, this preference is becoming increasingly achievable. Moving is not a fun process. Moving when you're old? Not something most people want to do.

So What Does This Mean?

This means it's nearly impossible for younger generations to buy a home. According to a recent analysis by Redfin, empty-nest baby boomers own twice the number of homes with three bedrooms or more compared to millennials with children. As a result, some young families are exploring new construction options, while others are opting to rent homes.

Many Millennials are also considering options abroad, as noted by the New York Times:

"Americans, unable to afford the kinds of homes they want in the kinds of domestic cities where they want to live, like San Francisco and New York, are moving to Southern Europe in significant numbers. Drawn to the region by its mild climate and low cost of living, made even more affordable by a strong dollar, many Americans gush about trading a car-dependent lifestyle for the chance to live in a vibrant, European city on the cheap."

Interestingly enough, when Americans move abroad, and buy up inventory in places like Lisbon and Barcelona, they’re actually causing the same types of headaches for local families that they’re facing at home:

"What is cheap for these Americans is brutally expensive for southern Europeans, whose average wages are substantially lower than Americans’. Locals are competing for housing against wealthy foreigners in markets already distorted by Airbnbs and corporate real estate investment. The result is a generation failing to launch, with more than 90 percent of southern Europeans under 35 still living at home, rates that eclipse their American counterparts. Those who have apartments face evictions and unpredictable rent increases in cities with weak rental protections, like Lisbon, Barcelona and Athens."

It's like the butterfly effect: Boomers staying in place in the US are actually making it hard for Millennials in Barcelona to own a home. Sort of. You get my point.

So Will This Get Better?

Honestly, TBD. Since 2020, there has been a gradual decrease in homeowner tenure each year. Redfin anticipates that homeowner tenure will likely remain stable or experience a slight uptick in the foreseeable future.

Existing-home sales reached a 15-year low last year, as many homeowners were enticed by low mortgage rates, leading to a situation where sales are expected to increase marginally this year, though the uptick is expected to be gradual rather than dramatic.

So, there you have it, that’s all for now. As always, if you’re interested in investing alongside us, fill out the form below.

— Brooks

Bonus Content

This tweet caught my eye this week: