Boomers won't part with their homes, that's a problem for young families
Baby Boomers are staying in their larger homes for longer, preferring to age in place and stay active in a neighborhood that's familiar to them. And even if they sold, where would they go? There is a shortage of smaller homes in those neighborhoods.
As a result, empty-nest Baby Boomers own 28% of large homes - and Millennials with kids own just 14%, according to a Redfin analysis released Tuesday. Gen Z families own just 0.3% of homes with three bedrooms or more.
"Boomers love their homes. Even if they did want to sell, it is now prohibitively expensive for many Millennials," said Sheharyar Bokhari, senior economist at Redfin who did the analysis. "These are larger homes where there are only one or two people living there and, typically, they bought it a while ago, so it has value."
This is a change from the historical norm, according to the research. Ten years ago young families were just as likely as empty nesters to own large homes.
The report defines age groups in the 2022 Census data as: adult Gen Zers were 19 to 25 years old, Millennials were aged 26 to 41, Gen Xers were 42 to 57, and Baby Boomers were 58 to 76.
Even though Millennials with kids own half as many large homes as empty nesters, Millennials make up roughly 28% of the country's adult population, the largest share of any generation.
With many young people already delaying having children as they work to find stability in their family and career, the well-established milestone of purchasing a home for the family is increasingly out of reach.
The lock-in effect, because of rates, is only half of it
Few homeowners of any age want to sell right now. This is crushing the inventory of homes for sale and keeping prices high.
Even though current homeowners have record-high levels of equity in their homes, there is very little incentive to sell.
More than 90% of current homeowners with mortgages have rates that are 6% or under, according to ICE Mortgage Technology, a mortgage data firm. With the current average rate for a 30-year, fixed loan hovering around 6.6%, nearly all but the most recent homeowners would be taking on a mortgage rate higher than their existing rate if they were to sell and buy another home.
While that is surely keeping some Boomers in their homes, said Bokhari, it is only part of the reason.
"Half of these Baby Boomers own their home outright, so the rate lock-in doesn't even apply to them," he said. "They just aren't downsizing. Even if it is just one or two people or a couple. They love their big house."
For those who own their home outright, the median monthly cost of owning a home, which includes insurance and property taxes, among other costs, is just $612, according to the report.
"Logically, empty nesters are the most likely group to sell big homes and downsize," said Bokhari. "They no longer have children living at home and don't need as much space. The problem for younger families who wish their parents' generation would list their big homes: Boomers don't have much motivation to sell, financially or otherwise."
Boomers have always loved their homes
Older Americans today own a much bigger share of large homes than they did a decade ago and young families own a smaller share.
But who owns them has changed.
Ten years ago, in 2012, empty nesters of the Silent Generation, who were between the ages of 67 and 84 at the time, took up 16% of homes that were three-bedrooms or larger. That is a smaller share than Gen Xers with kids, who were aged 32 to 47 at the time, and took up 19% of those large homes.
But even then empty nest Baby Boomers had the most large homes. In 2012, empty-nest boomers, who were then aged 48 to 66, owned and occupied 26.4% of three-bedroom-plus homes in the U.S., comparable to today's share.
Where Millennials own the most larger homes
Young families take up the smallest share of large homes in coastal areas like California and Florida, where large homes tend to be more expensive. Instead, the Midwest is where Millennials own the largest share of larger homes. But there is no city where Millennials with kids own more than 18% of large homes.
Empty nesters own at least 20% of large homes everywhere in the country. But they take up the smallest share of three-bedroom-plus homes in popular migration destinations as well as California cities like Riverside, California, with 21.9%; Salt Lake City at 22%; and Austin, Texas, at 22.2%.
What's ahead
There's some small silver lining in the year ahead, said Bokhari: Affordability is expected to improve somewhat in 2024.
Mortgage rates are trending down and are expected to come down more as 2024 goes on. That will bring the cost of homeownership lower for young families.
As mortgage rates fall, more homeowners will see the gap shrink between their existing mortgage rate and current rates for another home, making selling more palatable.
But would-be homebuyers waiting for a so called "Silver Tsunami" of older homeowners selling their homes en masse should not hold their breath, said Bokhari.
"Some Boomers are ready to downsize into a condo or move somewhere new for retirement, and the mortgage-rate lock-in effect is starting to ease," he said.
But "there won't be a flood of inventory. There will be a trickle," he added.