The boomer bust: fact or fiction?

Syndicated columnist Lew Sichelman recently tackled the issue of baby boomers selling their homes and downsizing according to a report from two USC researchers, but maybe it's just not that simple.

For one thing, AARP surveys over the years have consistently shown that 85 to 90 percent of seniors want to age in place. For another, the recent explosion in reverse mortgages over the past few years -- one third of which closed last year -- means that aging in place will become even easier and is also being offered at increasingly higher loan amounts by major lenders not associated or insured by the federal government (a subject I just took on for a feature piece in the real estate section of the Los Angeles Times that should be published in the next couple of weeks).

Nevertheless, the demographics are compelling so it's worth planning for a potential future in which large homes in the suburbs become less desirable over time:

The common perception among economists is that the current housing mess will be a relatively short-term affair that should see a return to normalcy within the next few years.

But, according to a new study by two USC researchers, problems of greater proportion lie just ahead. They call it the "generational housing bubble" and maintain that it will be fueled by the same baby boomers who have been bidding up prices since 1970 as they moved up the housing ladder.

Now, 78 million boomers are about to enter their twilight years when homeowners tend to become sellers rather than buyers. And as a result, the USC duo expects there will be "many more homes available for sale than there are buyers for them."

As the elderly become more numerous than the young, and shift into seller mode, the researchers postulate, the market imbalance could come quickly around 2011, causing housing prices to fall...

The researchers base much of their theory on the historic relationship between age and housing demand. For most of the American life span, the rates of buying and selling remain closely related because those who sell one house typically buy another. When people enter their late 50s and early 60s, as the leading wave of baby boomers has now done, buying and selling are in balance. When they reach their mid-60s, though, sellers start to outnumber buyers. And when they hit their 70s, sellers dominate.

People continue to buy homes after that age. But once they hit that benchmark, the number of sellers begins to exceed the number of buyers. Once they reach 75, they are three times as likely to be sellers than buyers. And at 80 and above, they are nine times more likely to be sellers.

Myers and Ryu project that the ratio of those age 65 and over to people ages 25 to 64 will surge 30% in the decade between 2010 to 2020 and 29% more in the 2020s, altering the balance between buyers to sellers for the foreseeable future...

f there is a positive aspect to Myers and Ryu's dire predictions, it's that the coming generational bubble will be a rolling one that won't affect all housing markets at the same time. And in some states, the sell-off will come later rather than sooner. Regional differences may be sharp.

Historically, seniors don't become net sellers in Arizona, Florida and Nevada until they reach 75. But the opposite is true in 13 other states -- Alaska, California, Connecticut, Illinois, Indiana, New Jersey, New York, Maryland, Massachusetts, Michigan, Minnesota, Ohio and Rhode Island. In those states, the crossover starts at age 55.