This is precisely the discussion we have been having at our weekly coffee group for a couple of years now…
The credit bubble has enabled a massive build of large, expensive homes all over North America–especially in Canada–and other countries like New Zealand, Australia. It’s not just that market prices are outrageous (enabled by 30 years of falling interest rates and rising debt), it’s also the insurance, taxes, cleaning, repairs, yards and other upkeep costs. While people are physically able they may do lots of the maintenance themselves. While still working, they may not mind hiring services to help.
But once retired few will want (or be able, see: The high cost of low interest rates on savers) to expend big outlays to maintain their house; let alone a house, a cottage and a ski chalet. With most of these properties currently owned by the age 50-70 category, the obvious question becomes, who in the world will buy all these high-end properties from the boomers and at what price?
For those who think this won’t become an issue for years yet to come, it might be time to think again. See Canada’s housing market faces looming demographic bubble:
“Older boomers are putting their houses up for sale, but they aren’t getting the offers they expect. So they take their houses off the market. Meanwhile nearby houses built on spec are selling at sharp reductions, as builders — and their backers — are forced to sell to get their money out.
“The baby boomers thought they had lots and lots of time,” Macbeth says, but the decline of the Alberta resource sector suddenly moved everything forward.
Rabidoux foresees something similar coming in Ontario, but the relative decline will depend on what kind of house and where it is located.
“You drive through the countryside, and in the middle of nowhere you’ve got this sprawling, 4,000-square-foot brand new house,” he says. “They’re everywhere.”
Rabidoux expects those rural monster homes will be some of the hardest to sell as boomers age and no longer want the responsibility of managing such properties. For the generation coming after, he thinks those houses will be impractical and unaffordable at current prices.”
Over the next 5, 10 and 20 years, the big demand push will no doubt be for smaller, more efficient, green, easier to maintain, but still luxury amenities, housing. That’s a no-brainer. But in order to move there, boomers will still need to sell their current monstrosities. A lack of able or willing move-up buyers is the problem. Perhaps renovating today’s large single family properties into multi-family units will be part of the solution.