“Trophy ranches” may disappear with Baby Boomers

One segment of the luxury property market does not appeal to younger buyers or those who do not understand the appeal of a “trophy ranch”:

Decades ago, a generation of America’s wealthiest, raised on television shows like “Howdy Doody” and “The Lone Ranger,” headed west with dreams of owning some of the country’s most prestigious ranches. Now, as those John Wayne- loving baby boomers age out of the lifestyle or die, they or their children are looking to sell those trophy properties…

Jeff Buerger, a local ranch broker with Hall & Hall in Colorado, said there are more large trophy ranches on the market right now than he can recall in his nearly three decades in the business. There are about 20 ranches priced at over $20 million on the market in the state, according to a Wall Street Journal analysis of listings…

Unlike other sectors of the U.S. high-end real-estate market, ranches can’t fall back on international purchasers. Broker Tim Murphy said there is virtually no demand for ranches from international buyers, many of whom “don’t get it.”…

“The last wave of buyers was the baby boomers who fell in love with John Wayne and wanted that experience for themselves,” Mr. Buerger said. “Today, it’s more about conservation. You’re starting to hear more landowners talking about wildlife habitat enhancement and ecological work.” Other targeted groups include wealthy families from the East Coast or Silicon Valley.

I would guess this is not just about baby boomers: it is about broader conceptions of what is the ideal property if someone came into significant money. The implication in the story above is that media, particularly John Wayne films, created a desire for these locations. Presumably, other media depictions would fuel desires for other properties. Depending on the tastes and background of buyers, this could range from:

1. Pricey downtown condos or penthouses in the middle of urban action (whether in well-established wealthy neighborhoods or in up-and-coming places).

2. Suburban McMansions that offer a lot of space and unique architecture.

3. Traditional mansions with sprawling homes whose size and design imply old money (in contrast to the flashy yet flawed McMansions).

4. Impressive vacation homes right on desirable beaches.

Perhaps the trick of any of these is to try to ensure that there are future buyers for your property. If demand drops, your hot high-status property may not hold up as a desirable location for the long-term.

Scenarios in which McMansions are passed along to younger adults

Older Americans own plenty of large homes and commentators suggest younger adults have multiple reasons for not going after such homes:

Younger people have loads of reasons not to be charmed by the vaulted ceilings and chef-ready kitchens of homes perched on mountaintops or hugging beaches that promised solitude once but now cry of isolation…

A report from Business Insider highlights numerous reasons that younger people might not want to saddle themselves with such beautiful albatrosses. Down payments, student debt and preferences for rentals in cities coupled with vacation home getaways have all contributed to what the report characterizes as “millennials wiping out starter homes.”…

And that is those among them who can actually manage to save up a down payment. Too many others are so burdened by student debt that buying a house is a foggy image off in the distant future. And lots of young homebuyers underestimate what it will cost them to keep a house, making it less likely they’ll bite off more than they can chew the next time they go home-shopping.

Factoring in their concerns over the environment—the energy footprint of a big house and a long commute—and their disinclination to own cars, as well as the need to hold down multiple jobs or have one or more side hustles—and it looks as if those mega-residences are liable to stay on the market for quite a while longer.

While one angle to this is that Baby Boomers will have a hard time selling their homes, the other side is whether the younger generations want and can get to such homes. I have seen little suggestion that young adults truly desire McMansions.

But, I would not write off this possibility just yet. I could imagine several possible scenarios where McMansions happen to end up in the hands of future generations:

  1. Younger adults do well enough economically – or enough of them do since not all Baby Boomers own big homes either – to keep McMansions going.
  2. Baby Boomers cannot sell their large homes, the prices drop, and the homes are more in the reach of younger adults.
  3. Enough McMansions are converted to other uses – think multi-family housing – to keep the prices up enough to keep everyone happy. (Or, in a more dystopian model, McMansions are simply bulldozed or replaced to limit the supply.

I have a sneaking suspicion McMansions will be passed along in decent numbers to the next generation…despite the wishes of some.

Downsizing, Marie Kondo, and all the stuff Americans own

Many older Americans want to downsize (and cash out on their homes), Marie Kondo’s approach is popular, but where will all that stuff owned by older homeowners go?

Auctioneers and appraisers, junk haulers and moving companies all seem to be echoing the same thing: The market is flooded with baby boomer rejects. And they cite a number of reasons our kids are turning down the possessions we so generously offer to them. They rent rather than own, live in smaller spaces, collect more digital than physical items and tend to put their money toward experiences rather than things…

Her kids also rejected three sets of formal dinnerware, including Haviland China; vast collections of Lladro figurines and Department 56 Christmas villages; as well as 3,000 Beanie Babies and boxes of soccer awards she and her husband, who both coached for many years, earned with their children.

The only offer she got on any of her treasures? One son wants her Hallmark Frosty Friends ornaments she’s collected over 37 years “because he knows how much they are worth.”

Two scenarios could develop:

1. There will be a growing market in stuff that older Americans no longer want. Perhaps many millennials or Gen Z do not want stuff from their parents but some other American will want it. It does not just have to go to resale shops; enterprising individuals and firms could shop all these items online to find buyers interested in particular niches. Perhaps this could even expand to international markets and be shipped in bulk around the globe.

2. Much of the stuff will simply be thrown away, particularly items that are more sentimental in nature. Some lucky owners will find people to take or buy their unneeded items but much of the rest will simply find its way into landfills. Decades of consumption will end in the garbage can.

I have not seen any estimates either way of how much money all of these goods could generate or how much waste could be involved (or a combination of both).

Also, consider the implications of such a change: younger generations do not take material objects from their parents and grandparents, creating a bit of a gap in a material timeline. Perhaps the shifting of wealth from generation to generation more often takes the form of helping to pay for housing or student loans rather than tangible goods. How does this change memories and collective understandings of the past?

 

Will millennials kill McMansions?

Millennials get blamed for a lot of things and here is another possible area where their choices may have consequences: the selling and buying of McMansions.

The end of so-called “McMansions” has been predicted several times over the years, but those large, mass-produced houses that the baby boomer generation (born 1946-1964) favored as a status symbol kept coming back. Now, baby boomers are entering their 70s and 80s and many are looking to downsize, but they are finding it hard to offload these large homes, facing a paucity of buyers among the millennial generation (born 1982-2000), who are unable to pay the prices they want.

For anxious sellers, however, respite could be around the corner as mortgage interest rates ease, and the millennial generation becomes qualified for more and bigger loans, experts say…

A big problem for the McMansion market is the mismatch between where millennials prefer to live and where those large houses have been built. The younger generation gravitates to cities – where their jobs are — whereas baby boomers have built their homes in suburban locations…

Keys wondered if the housing preferences of the younger generation have truly changed or if there is only a “delay” in the demand for McMansions. Those homes may not be desirable to people in their late 20s but instead to people in their late 30s or 40s, he noted.

This is not the first time I have seen the suggestion that millennials have less interest in McMansions: Builder had a piece on this a few years back. And the baby boomers may have a problem bigger than just McMansions: who will buy all their homes, McMansions and otherwise? When housing becomes a primary investment for so many Americans, not having enough future buyers can become problematic.

More broadly, this discussion follows a typical pattern for stories and studies about millennials: will they act like previous generations (and have not done so thus far for a variety of reasons including an economic crisis and student loan debt) or do they truly have different tastes and want to lead different lives? In the realm of those who care about cities and suburbs, this is an ongoing discussion spanning years: will millennials be suburbanites or city-dwellers? Will they reject lives built around single-family homes and driving and prefer denser, diverse, culturally-rich communities (or a mix of both in “surban” places)?

If I had to guess, this group will exhibit some change from previous groups but probably not drastic change (based on the idea that social change tends to happen more slowly over time). Reversing suburban culture, ingrained among many American institutions and residents, would like take decades and not just one generation. The McMansions of older residents may not all sell at their preferred prices but barring another housing bubble (which could happen), they will be worth some money.

“McMansions are the largest physical boomer legacy soon inherited by their children”

A Connecticut architect considers the McMansion legacy left by a generation of homeowners and builders:

Skyscrapers are the image of New York. The White House is more America than a home. And McMansions have become a punchline. When I sought to find land in 1982, a broker pushed a building lot in a McMansion development, pushing its allure by flatly asserting, “We’re talking about some seriously beautiful homes here.”…

Time has not been kind to we boomers. We basically tanked the entire world’s economy with “irrational exuberance” that found its most publicly grotesque distortion in those McMansions. Make no mistake millions of less-than-McMansions had more distortional impact on the credit markets than the hundreds of thousands of McMansion, let alone the one-off attempts by individuals who try to buy social legitimacy by building large homes — the real mansions…

McMansions are the largest physical boomer legacy soon inherited by their children, the millennials, who have had the worst economic birthing since the Great Depression. Kate Wagner was barely in her 20s when she called out the final fruits of 40 years of serial housing booms that afflicted America. But the impact of in-your-face domestic chest-beating is especially present in Connecticut, which realtor.com trumpeted as having the “metro” with the third most McMansions in the country. And that impact was doubled down by the added insult of unending instant “tear-downs” of those homes built in the previous generation in the tight Northeast.

As an architect I have remade any number of these instantly dated ego vehicles. We have also revived any number of raised ranches, garrison colonials and Capes. Often those homes need strategic expansion. But with McMansions, removal of the offending detail and pretense is often the first remediation.

I like the idea that a social group – here the emphasis is on Baby Boomers – can leave a physical legacy for later members of the same society. People do not just pass down values, norms, and behaviors; they also leave a physical landscape and places that they have made and shaped. Even though we do not focus much on this in the United States, these places shape us and also provide inertia for what future residents will experience. McMansions have the potential to influence millions of lives even as the original designers, builders, and residents may no longer be present.

At the same time, I wonder how obvious the excesses of the McMansion were while they were being constructed in large numbers. It is relatively easy today to look at them with disdain or wonder at what prompted them. A blog like McMansion Hell has the benefits of hindsight as well as new eyes from a younger resident from a different generation. Did this architect call out McMansions back in the 1990s when wealthy Connecticut communities built them in large numbers? My own research suggests the tide starts to turn against McMansions in the early to mid 2000s as consistent critiques of their architecture and consumption arise as well as there are enough of them in communities across the United States to see them as a single phenomenon.

Going forward, I don’t think McMansions will disappear. There is plenty of money to be made in McMansions compared to building smaller housing units. It is not clear that all millennials or future homebuyers will see them as homes to be avoided. And many of the McMansions critics say are poorly built and designed will last for decades.

Homeownership rate up, driven by millennials

Millennials buying homes helped push the national homeownership rate higher:

The homeownership rate for Americans under 35 jumped to 36.8 percent in the third quarter, highest in five years, the Census Bureau said Tuesday. The share of millennial homeowners was up sharply, from 36.5 percent in the second quarter and 35.6 percent a year earlier. That’s still below the historically normal 40 percent-plus share for Americans that age.

But the young adults, largely first-time homebuyers, drove the national homeownership rate to 64.4 percent – highest since 2014 – from 64.3 percent the prior quarter…

Skylar Olsen, director of economic research for real estate site Zillow, says the slowing housing market actually has aided millennials who are facing somewhat less competition as they hunt for their first home…

The surge in millennial homeownership is a sign the recent housing slowdown is likely temporary, McLaughlin says. “Because that group is so big, it can help support the U.S. housing market indefinitely,” he says.

Millennials are good for something! Someone has to want to buy all those homes that Baby Boomers will soon make available.

Seriously though, two thoughts based on this data:

  1. Even with this news, expect the increasing ability of millennials to buy homes to lead to steady progress, not huge changes in homeownership (which had reached record low rates).
  2. Even with their economic troubles, millennials would prefer not to rent in the long run and would like to own homes, preferably in the suburbs.

For the housing market to really take off, both millennials and Baby Boomers need to want to and be able to move into homes they want.

 

The big Baby Boomer house does not necessarily equal a Mcmansion

A recent analysis on Realtor.com uses the term McMansion as shorthand for a large house owned by a Baby Boomer. Here is the crux of the argument regarding the habits of millennials:

“They’ll buy a smaller house with fancier amenities, close to town, rather than chase square footage,” Dorsey says.

This argument has been made for several years now: millennials are willing to live in smaller homes but desire certain amenities. But, is every big house a McMansion? No, no, no – a minority of American homes are over 3,000 square feet but not all of them are McMansions. Even if they meet the size requirement, they may not be teardowns, suffer architecturally, or exist in lonely suburban communities or all house crass consumers or the nouveau riche. And do all Baby Boomers live in McMansions? Of course not. There may be broad patterns at play here – Baby Boomers have plenty of houses to sell, millennials may not want all of those particular homes – but using loaded terms like McMansions or suggesting incompatibility across entire generations may be going too far.

Side note: this Baby Boomers vs. millennials in the housing market is gaining steam across media sources. How will the Boomers sell all of their houses? (See earlier posts here and here.) What do millennials want in houses and communities? (See earlier posts here and here.)

Predicting the “great senior sell-off” to come

Here is an update on one event that might be coming down the road: the time when the Baby Boomers decide to sell their homes.

Nelson pointed to the affordability issue as well as the fact that about a quarter of Millennials prefer urban housing, such as condos or townhouses, over the detached suburban homes that were the Boomers’ preferred habitat. Younger buyers, he said, will also be looking for starter homes—smaller than the big Colonials and split-levels that line America’s cul-de-sacs. “We can predict the next housing crash,” he said at the time. “That’ll be in about 2020.”

Four years later, Nelson tells CityLab that that he believes the sell-off will still occur—but later, in the mid- to late 2020s. This has to do with people deciding to defer selling their homes, hoping to get a better price later than settling for a lower price now. “Home values in much of the country are still less than those before the Great Recession of 2007 to 2009,” he says. Prior to the recession, the typical homeowner would sell a house about every six years. “It was like clockwork,” says Nelson. “This drove a lot of planning and development projections.”…

Nelson predicts that the fringe areas surrounding cities will bring the biggest headaches for Boomers looking to unload their houses. Because Millennials will be looking for small homes when they finally start to buy in larger numbers, the sprawling McMansions of the exurbs won’t be desirable to many of them. “The Boomers in the exurbs are going to be in a real pickle,” says Nelson. “Even in a dynamic market like Washington, D.C. or other booming cities, the market for those homes is going to be soft.”…

But many analysts do agree on one thing: More housing will need to be built for Millennials—and it needs to be scaled to their desires, not their parents’s. “Millennials are likely to prioritize different features in their homes, such as greener materials or in-law suites,” says Molinsky. And according to the Harvard Joint Center’s projections, nearly 90 percent of those looking for homes in 2035 will be under 35 or 70 and over—and both groups tend to buy less square footage.

I suppose we’ll see what happens. I tend to think that Millennials might not be as transformative as some have suggested in regards to where they want to live or in what kinds of houses they inhabit. At the same time, there may be fewer Millennials than Baby Boomers in the market for housing – both due to different sizes of the various cohorts as well as the limited purchasing power of some Millennials  which means it could take some time for those Baby Boomer dwellings to find buyers.

It is also interesting to consider what might happen if these homes, particularly those on the metropolitan fringes, can’t be sold. Would they be demolished? Converted? The community retrofitted? Drop to a low enough price that they become very attractive to certain groups? We have plenty of history as a country of people spreading out but not much experience with any serious contraction.

Baby Boomers contributing to slow real estate market

Experts suggest the inaction of Baby Boomers is adding to a slow real estate market:

Boomers are part of a “clogging up [of] the whole chain of home sales,” Sean Becketti, chief economist of giant mortgage investor Freddie Mac, told me last week.

“They appear to be staying in the family home longer than previous generations,” Becketti wrote in a new outlook report, “and the imbalance between housing demand and supply continues to boost prices.”

Of course, boomers’ behavior has had outsize effects on the national economy for decades. In real estate, their footprint is enormous. Becketti cites the Federal Reserve’s most recent Survey of Consumer Finances, which estimated in 2013 that households led by people age 55 and older controlled two-thirds of all home equity. One federal estimate puts the aggregate value of their houses at close to $8 trillion.

In past generations, once the kids moved out, empty nesters began to downsize, either purchasing smaller houses or renting apartments. Boomers don’t seem to be in a rush to do either.

While bigger and more expensive housing is moving more quickly, it is at the lower end of the market – smaller and cheaper homes – that needs help. Where are the starter homes for younger adults? It could be a combination of developers focusing on homes with higher profit margins, millennials waiting longer to purchase homes, and older residents staying put longer. This not only affects different age groups; it also has an overall impact on the supply of affordable housing for anyone which is lacking in many major metropolitan regions.

So what kind of incentives would convince Baby Boomers to move?

Preparing for a lot more baby boomer friendly housing

An aging population means that more Americans are going to be looking for housing that meets their needs – and there may not be enough of it:

While affordability is a problem on the horizon for some older residents, accessibility challenges are virtually guaranteed for all. While increased life expectancy and a factor that the U.S. Department of Housing and Urban Development cites as “compression of morbidity” means that older generations (even beyond the Baby Boomers) are living actively later into life, disability eventually affects almost everyone. One of the great equalizers in life, disability arrives without any deference to income or race. (Privilege in these realms often makes it easier for people to adjust to disabilities, of course.)…

The housing stock built for Baby Boomers largely wasn’t designed with accessibility in mind. There are five universal-design housing features that tend to address a variety of disabilities that residents face as they age: no-step entries; single-floor living; switches and outlets set at lower heights; extra-wide hallways and doors; and lever-style doors and faucets. Nearly 90 percent of existing homes have one of these features, according to the report—but just 57 percent have two…

Homes built more recently are more likely to accommodate all five universal-design features. Among these universal-design features, the one that’s most common in homes today is the single floor. More than 86 percent of homes in non-metro areas features single-floor living. These figures for cities and suburbs are high as well: 74 and 72 percent, respectively.

Yet these detached, single-floor, single-family homes—and the automobile-centric society that comes with them—are only going to fall further out of step with the needs of residents over time. And sooner rather than later. Homes can be retrofitted with lever-style handles and no-step entries (albeit at great expense). It’s much harder to turn exurban and rural communities where older Americans live into places that nurture seniors rather than isolate them.

A range of issues to consider from design to the layout of communities. Given the retirement savings of Americans, how many of them could afford to move to a new or retrofitted home as they age? One benefit of aging is that these Americans could theoretically have already paid off their homes or gotten close to that point, capping how much they spend on housing. How many want to search out a new mortgage or pay for potentially costly renovations? Some possible solutions:

1. Building more housing for all ages that meet these guidelines. Accessibility can be an issue even for younger residents.

2. Finding funds at a federal or lower level of government to help people retrofit their current residents to better meet these standards. This has the benefit of helping them do what many want as well as letting them stay engaged in and involved with the communities they care about.

3. Aging Americans living in suburbs is a tougher issue as it often requires dependence on a car and it is more difficult to distribute social services. This might require finding ways to make single-family homes multi-unit or building pockets with suburbs that cater to older residents (and not necessarily creating whole new communities like Del Webb).