Record Number of Baby Boomers Paying Cash for Homes
Real estate professionals across the U.S. have been noticing a huge phenomenon when it comes to home buying trends. Lately, lots more home buyers have been paying with cash. RealtyTrac confirmed those suspicions earlier this year with the news that during the first three months of 2014, cash transactions accounted for a record-breaking 43 percent of all home sales. That figure has climbed 19 percent since 2103 and is the highest percentage recorded for cash home buys since RealtyTrac began following that trend in 2011.
In looking for explanations, Chris Pollinger of First Team Real Estate in Southern California observed, “Inventory shortages, as well as lending regulations favor the all-cash buyer.” RealtyTrac’s vice president, Daren Blomquist, explained further that even buyers who would normally choose to finance a property purchase are leaning towards paying cash in order to get the seller’s attention and resolve the sale more quickly.
So who makes up the majority of those home buyers paying cash these days? Are they trust fund first timers, those foreign buyers we’ve heard so much about or perhaps the crop of hi-tech millionaire Millennials? According to Lawrence Yun, the chief economist for the National Association of Realtors, Baby Boomers are today’s biggest group of cash buyers. Yun noted recently that it is much easier for this population of Americans to make a large cash purchase because of the many positive financial perks they have acquired. The two main perks are the decades of equity most Boomers have accrued plus this year’s very favorable stock market returns. Please keep in mind that the Baby Boomers were homeowners during an extremely stable time in the nation’s history. When the mortgage crisis hit, most Boomers were likely in a secure to favorable condition where their real estate investments were concerned.
Because Baby Boomers are defined as individuals born between 1946 and 1964, there are currently more than 62 million of them who are over the age of 60. As they face their retirement years, millions are planning to downsize as well as relocate. The NAR’s Lawrence Yun speculates that cash purchases for homes have been driven by the fact that America’s Baby Boomers do not want to face the “hassle of a mortgage.”
See related article, “Should You Pay Off Your Mortgage Before Retirement?”
They can easily achieve this desire because they were fortunate enough to be homeowners during the most lucrative 30-year housing bull market in history. Here’s an example cited by RealtyTrac: “The median U.S. price of an existing home in April was $201,700, triple the $67,800 median price in 1982 when many Boomers were buying their first properties.”
As the population of Boomers reach retirement age, they are tipping the scales in terms of housing market statistics. U.S. Census data shows that in 2009, the number from this group who owned their homes outright was 12.1 million. In 2012, that total had climbed to 16.3 million. William Frey, who is a senior fellow at the Brookings Institution, believes that just as the Baby Boomers made sweeping changes in American society, they are also destined to shake up the nation’s housing market. Frey commented, “Whatever housing decisions they make as they near retirement will have an impact on the market. If they have the ability to be free of a mortgage when their income diminishes, they’ll do that.”
It is not expected that this trend will slow down any time soon. That is because as a segment of the population, Baby Boomers are quite a bit more active and healthy than previous generations of retirees. Financially savvy as well, they are likely to be involved in the housing market when they are well into their 80s. Consider that the youngest wave of Boomers, those born in 1964, is just now reaching the age of 50. Another buying trend among the Boomers is to purchase a vacation or resort property. They often remain in their current homes mortgage free, and rent the second home with plans of moving upon retirement. And, by the way, most Boomers are working beyond the age of 65.
- CNN Money article
- Investment News article
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