Downsizing your home isn't a simple decision

Children grow up and move out. Careers end and commutes vanish. As baby boomers hit retirement age, many may wonder if there is any reason to remain in the traditional family home.

There are plenty, it turns out.

With about 10,000 boomers a day reaching retirement age until 2030, decisions this generation makes will shape the housing market for years. Bank of America's 2022 Homebuyer Insights Report said 70% of boomers, people born from 1946 through 1964, expect to retire in a home they owned before retirement.

Older adults have for decades said that they prefer to age in place, to age in their home or to age in their community," said Lisa Sturtevant, chief economist for Bright MLS, a multiple-listing service that covers six states and the District of Columbia. "What's different though now, with the current population of baby boomers maybe in their 60s and early 70s, is they actually are remaining in their homes longer."

The pull is strong.

"What we find is that people don't want to leave their houses - leave the familiar," said Gary Ditto of the Ditto Group in Bethesda, Md., "and generally they don't, unless there is a reason to do it."

Both positive and negative forces keep seniors in their homes. A survey of adults 55 and older by housing-finance giant Freddie Mac, for example, found a sharp rise in seniors' confidence of a financially comfortable retirement. Sturtevant, meanwhile, offered four more reasons:

• Boomers are staying in the workforce longer.
• More of their children — often millennials (born from early 1980s to mid-1990s or early 2000s) with student debt or facing high housing costs — are returning to the family home.
• Many boomers, as well as Gen Xers (1965 through 1982), have locked in mortgage rates of less than 3% in recent years and are now looking at rates topping 7%.
• Inventory is tight, especially for smaller homes with the features that potential downsizers seek.

Baby boomers' rise to economic juggernaut was attributable to more than just the sheer number of babies born in post-World War II America.

Their parents "came back from the war," Ditto said, "to the greatest stimulus program in the history of the country, the GI Bill," which included, among other benefits, the ability to buy a house with no money down.

Generational wealth built through homeownership reached deep into the burgeoning American middle class. Decades later, boomers now hold the largest share of residential real estate wealth (43.2% compared with 33.2% for Gen X and 13.2% for millennials).

The nation's nearly 70 million boomers, experts caution, are a varied group with diverse goals. Whether they stay in place or move, they remain a formidable force, and their housing decisions cause ripple effects throughout the market.

"What we're finding is that as boomers stay in their homes longer, the inventory of homes available for first-time buyers or young repeat buyers is really quite low, really historically low," Sturtevant said.

While boomers' influence on the market might inspire derisive "OK, boomer" rants from millennials, there are intergenerational benefits as the market evolves.

For many boomers, staying in the family home means preserving their most stable asset for their heirs.

"As the equity in our housing has grown over the last few years, I think boomers do want to be able to pass that equity [along] and help their adult children either start a business or buy their own home," Sturtevant said.

Higher interest rates, especially for those on a fixed retirement income, shrink the buying power of equity acquired over decades — and make downsizing less attractive. For example, when mortgage rates were at 2.96% in 2021, a buyer putting 10% down would pay $1,887 a month in principal and interest for a $500,000 home. When rates topped 7% last fall, that monthly payment would buy a $312,000 home.

"That's something that's incredibly important to retirees who need to stick to their household budget," said Jessica Lautz, vice president of research for the National Association of Realtors. The low rates, she said, are "golden handcuffs."

For some boomers, staying in the family home allows multigenerational living, making room for returning adult children or elderly family members. Sturtevant sees the growth of "accessory dwelling units" — often small living quarters added to back or side yards — as part of the evolution.

Still, experts and agents say, remaining in a longtime home isn't for every boomer. Although many choose to stay in place, the boomer demographic still pushes sales. The median age for repeat buyers, major drivers of the current market, is 59, Lautz said.

For many senior buyers, their decisions involve long-standing retirement choices: moving to a milder climate, a resort area, a senior community or a "dream home" with the technology and other features that promote comfortable aging.

Some senior buyers avoid high interest rates by paying cash for their new homes. In February, buying with cash hit its highest point since 2015. Others move farther from city centers or close-in suburbs to homes better suited to their lifestyles. There, however, they might bump into competition with first-time buyers looking for more-affordable housing.

Some boomers need more space, not less.

"Immediately when the pandemic started, we saw this massive growth in multigenerational buying," Lautz said. She said the main reason was for the homeowners to spend more time with or provide care to older relatives.

At the same time, younger family members may be looking for a place to live.

"Baby boomers have a lot of housing wealth and wealth generally, and so if you pool your money with your [boomer] folks you could actually purchase a bigger house in a better neighborhood than you would be able to buy yourself," Sturtevant said. "So we're starting to see that as well."

The last of the boomers hit 65 in 2030, but the next chapter for the market could begin sooner.

Inventory will "still be pretty constrained for the next three to five years as this demographic cohort moves through their 60s," Sturtevant said, "and then, after that, we will start to see, I think, inventory free up a little bit.