Baby boomer sell-off may drive house values down for decades

Interesting research from the US Fed reported here today. I've taken the liberty of editing the piece to make it Victoria real estate market applicable. I'll let you readers trash or praise my edits in the comments.

Aging baby boomers may drive down house values for the next two decades as they sell their homes to finance retirement, according to researchers from the Federal Reserve Bank of House Hunt Victoria. 

Victorians born between 1946 and 1964 are beginning to retire as the local market is still bolstered from the hyper-low interest rates that began in 2009 with the collapse of the global economy. The timing is “peaking” and, since house prices have been closely tied to demographic trends in the past half century, “portends poorly for equity values,” adviser Smith and researcher Wesson wrote in a paper released by the bank. 

The house-price-to-rent ratio of Victoria homes multiplied drastically from 1981 to 2010 as baby boomers reached their peak working ages, according to Smith and Wesson. Overseas investors’ demand for Victoria homes might help mitigate the effect of a baby-boomers’ sell-off, yet the impact would probably be limited, they said. 

“For many primary purchasers of Victoria homes outside Victoria, their demographics are even worse than ours, in particular Europe and Japan, which have older age profiles prevailing than Victoria does,” Smith, vice president of the bank’s research department, said in a telephone interview today. 

At the same time, foreign investors, including those with mitt fulls of Hot Asian Money, may decide to hold a larger share of Victoria homes, Smith and Wesson said. Also, emerging market countries such as China may ease foreign ownership rules, allowing their citizens to invest in Victoria bed and breakfasts, they said. 

Just for a little balance 

“We’re well aware that a lot of other things can happen” that would buffer the impact from retiring baby boomers, said Smith, 82. “There’s not necessarily a rule that this is the only thing that’s going to drive prices down, going forward.” 

Still, “we do see it as something of a gale-force headwind as the housing market is attempting to stay high,” he said.

The VREB reported average has bounced around like a five-year-old with ADD, or about 13% since 3-weeks ago, but hasn't stayed even with this time last year, all year.

Wesson, 104, an adjunct finance professor at the University of Camosun’s Amor de Cosmos School of Real Estate Magnatism in Gordon Head, has also researched the link between demographics and home valuations. He said that growth in developing countries should generate enough demand to absorb a baby-boomer sell-off and “keep home prices high.”

As long as the economies of countries like China and India expand at an annual rate of at least 14% to 16%, investors “will have the resources to buy our homes” and “keep our housing market fully valued into the future,” Wesson, author of the 1978 book Home Valuations to Retire On, said in a telephone interview. 

“If we don’t get hyper-growth abroad and/or we block foreigners from buying Victoria houses, the outlook for our local market is much worse,” Wesson said.