OK Boomer
By Diane Saatchi
OK Boomer
There is a huge generational divide between Baby Boomers and their children, the members of generations X and Y. You see it when your kids or grandkids call you out with an “OK Boomer,” accompanied with an eye roll or smirk to imply you’ve done or said something you would have considered “square” back in your day.
You also see it in real estate.
The different economics and values between the generations come up so often that they may account for one of the reasons why the current real estate market fell out of step with the stock market. This is just my opinion and may apply only to the peculiarities of the Hamptons vacation/second home market. And it certainly won’t apply to everyone. Every home is different, as are the sellers’ situations, but after hearing a similar story many times over, it’s hard not to consider it a trend.
Many listing visits go like this: The sellers (usually Boomers, in this scenario), oozing with house pride, find it necessary to tell me from the get-go that they don’t need to sell but think it’s time to move on. They soon mention that they don’t need the money — it’s just that they hardly use the house anymore and that their children rarely visit. The property may need some work and with tax changes it makes sense to not have property in New York. They would keep it ... but their kids don’t seem interested in this lifestyle.
We talk about current market conditions and they assure me their real estate has always sold quickly and at prices they never imagined. Bottom line: They are not in a rush to sell and feel confident the house will sell quickly and at a high price, because that has been their experience.
Given their experience, low interest rates and the record high stock markets, one would think those Boomer sellers are spot on. But if you look on any real estate website and see “time on market” data you’ll get an entirely different view. How come?
Life was different for Boomers than it is for their children
Just after World War II, there was a baby boom — and also a boom in homeownership, fueled in large part by changing demographics, rising income and government policy. The rate of homeownership in the US was about 40% in 1940 and peaked to almost 70% in 2000. Home mortgage policies were designed to help young families with little cash on hand to enter the market, and tax breaks made ownership affordable as their family grew and income rose. Owning a home was primarily for shelter, but it also created equity that was used to trade up, buy cars and pay tuition. To meet the demand, developers were also helped by government policies — everyone prospered.
Boomers grew up in seeing and believing if you bought property, you’d be financially secure through adulthood. Besides the house appreciating, you got a tax benefit from mortgage and property tax, and home improvements could be deducted from your capital gains. It was sound financial planning, and if you were lucky enough to have a second home, you got that benefit twice. While there was some degree of pride in ownership, people bought because it was also a good investment. It was forced savings; you could never go wrong.
Younger generations feel differently. Boomers’ Generation X offspring were named X in reference to the generation’s desire not to be defined. These 35 to 49-year-old folks tend to value flexibility and liquidity, two things you don’t have when you become a homeowner. There’s a sense of wanting to be free, being able to be agile with money if there’s an opportunity, and that opportunity isn’t necessarily real estate. I regularly hear stories of people who rent by choice, unsure if their jobs will relocate or they’ll need to move, who don’t want to be “tied down” by a house, and certainly not by a second home. They’d rather use time off to travel. Furnishing, fussing about a house, and gardening are what parents and grandparents do on weekends.
Unlike their parents, post-boomer generations faced college debt, high costs of living and the challenge of finding well-paying jobs. Many still rely on their parents for help with housing costs well into their 40s, and many grandparents pay for summer camp and college tuition. Plus, having reached adulthood in the mid-aughts, Gen Xers aren’t convinced that real estate is an infallible asset. “I can do better with the money in other equities,” they’ll say. “Why tie it up in real estate?”
Timing is everything
Just as our market is heading into a recovery phase, the Gen Xers are reaching their peak earning years and they may also be in for a boost. It is predicted that over the next 10 years, they will hold five times as much wealth as they have today. According to a study reported in Forbes, the group is anticipated to inherit over $68 trillion from their Baby Boomer parents by the year 2030.
Your offspring may not want your Hamptons house nor your furniture and collectibles, so don’t save it for them. But I am betting they will come around to the lifestyle you showed them and will be back in the Hamptons maybe in a smaller but definitely smarter house and for sure without your antiques. So, Boomers: It’s going to be OK.
© 2020 Diane Saatchi