REAL ESTATE: Has the Boomer Trigger now been pulled in Vancouver? ( PART 1 )
Sunday, September 9, 2012
Faithful readers know we have often talked about the Boomer Trigger.
The majority of the self-indulgent Boomer generation have failed to prepare for their senior years.
Seven out of 10 Boomers do not have enough money set aside for retirement. And since 2011 marked the beginning of the great Boomer transition into retirement, this financial planning statistic is significant.
Starting in 1946, the demographic Post-World War II baby boom began. And the Boomers at the front of this wave have benefitted most from seemingly everything.
After having been raised in the post-war affluence of the 1950s and 1960s, the first wave of boomers entered their mid 20’s starting in 1971. As they settled down between 1971 and 1976, these first Boomers bought homes which sold for between $40,000 and $60,000 in suburb communities like Richmond.
Now, as these Boomers head into retirement without adequate funding to carry them through their golden years, the vast majority have a very simple retirement plan: sell their bubble inflated asset of a house, downsize and live off the proceeds.
A average house on a large lot bought in 1971-1976 in for between $40,000 – $60,000 is now ‘worth’ between $1.5 – $2.5 million dollars.
Thus the Boomer Trigger… trigger the sale of the one significant asset they have to fund their retirement. At the same time, if the market slows, Boomers can use their original purchase price advantage to under cut other sellers in a collapsing market – a maneuver which has the potential to crash the market if done by a large number of Boomers at the same time.
Some may recall the book “Boom Bust Echo” by Dr David Foot, circa 1996.
It was very intriguing, in the sense that it was hard to believe, but it made so much sense.
The implication/premise was that, using demographics, the post war baby boomers would have a major influence on society, ranging from housing, health care, etc. After this group would be other groups , perhaps best defined as the boomers’ children ie Generation X etc.
Those born at the start of the baby boom , born in 1946, would have been 24 years old in 1970. That would imply they graduated from high school with a trade or possibly a university degree. …. the start of a career and earning years. By this time, women were also entering the work force in increasing numbers. Dual incomes. Yes, those prices noted in Richmond were approx. ….most homes were well under $100,000. Vancouver homes were closer to $100,000.
However, things really changed. I could get into the money supply situation, but dual incomes did not tend to lead to homes being paid off more quickly,but simply drove the cost of home prices upward due to more money available. In addition, the actual retail price of the physical home increased. By that I refer to a home tended to be turn key, complete from top to bottom, ie completely finished. I vividly recall as a young child moving into a home my Dad and Grandfather built in 1963 . When we moved in, we had no carpeting ,plywood floor in the kitchen , unfinished basement. My parents added these as they could afford it. All the cabinets were basic “built ins” built by my grandfather. I recall the lot was purchased for $ 2,000 in the early 1960’s . All in, the house cost approx $17,000. Looking back, the neighbourhood was full of families,lots of children. People lived frugally, but happily, but classic middle class. I recall my parents talking about living in Marpole, fixed up a small house, and made $1,000 profit…and moved to North Richmond and bought a huge lot and built a new house.
Looking back , a lot of things did go sideways . People began to acquire too many possesions. I recall the Gov’t pension had come into play. I seem to recall that families stuck together and provided care for the young and the old.
Real Estate was the magic wand to wealth ( old cry of “they are not making any more” ). Previously there were about 3 housing styles…Rancher, Split level or 2 story approx 2400 sq ft. Again the theme is basic not extravagant.
If 7 out of 10 people do not have enough funds for retirement, I personally won’t blame this necessarily on real estate. Yes, many have swallowed the “kool aid” and been sucked in that they could buy a home and flip it and make a nice profit, and that they could move elsewhere and retire off these funds. The lead boomers, born in 1946 who are retiring now, ie since last year , at age 65 , are most certainly caught in a bad economic climate. Many people have to rely solely on their own means of funding for retirement, which used to be investing in stocks,savings, long term deposits etc. ie diversity. Unfortunately, that strategy seems to be increasingly dubious. IMHO, the whole economy is rigged, and people were herded into investing in Real Estate. The entire economic system is crookeder than a dog’s hindleg, as we see each day. I realize many criticize peoples’ rush into real estate as a means to fund retirement, and created a bubble, but it is what it is, we are at this point. This affects all of us, no escaping it..
The other thing about this article is that it implies 3 out of 10 have saved enough for retirement, or should I say will have a secure retirement. Who are these ? That 30% number resonates in me…..it is often the proportion of those that work in the public sector and/or in unions. They have had pension plan eligibility since they have been working, and re: Gov’t they are very generous pland and by and large secure . In other words, they do not require savings to enjoy a decent retirement ( though, in the U.S and elsewhere, they are finding these pensions are unsustainable )
I don’t think this 7 out of 10 number will get better, I think it will get worse. This will creates major upheaval in society as old boomers will have to make a major lifestyle change.
( To be Continued )