Real Estate Newsletter 4.22.24
Weekly News Roundup
- Boomers Contribute to Housing Shortage
- Real Estate Nightmare in St. Louis
- Urban Doom Loop Threat Exaggerated
Boomers Contribute to Housing Shortage
Baby boomers bought up many of the big homes across the U.S. when they were raising their families. Now they’re staying put, even though their kids are all grown up. Boomers are on top in a housing market where tight inventory, higher interest rates and steep prices are making homeownership less affordable for the average family. About 28% of all U.S. homes with three or more bedrooms are owned by people between the ages of 60 and 78 living by themselves or with another adult, according to a Redfin analysis of 2022 census data. Millennials living with children own just 14% of these bigger homes.
A recent Fannie Mae survey found that most Americans 60 and older don’t intend to ever move. For years, some have predicted that boomers would start selling off their big houses en masse, flooding the market with properties. Instead, many aren’t budging, similar to younger homeowners who don’t want to give up their low-rate mortgages. The problems, though, are deeper than boomers not moving. Home-building activity plummeted during the housing crisis and remained depressed for years, contributing to a historic decline in the construction of new homes and a housing shortage. A rapid run-up in interest rates over the past two years sent mortgage rates soaring.
Many just don’t see a better alternative to their big homes. Smaller properties with amenities that might appeal to older homeowners, such as no stairs and close proximity to services, are scarce in many areas. People also have big financial incentives to stay put. More than half of boomers have no mortgage. Those with mortgages face a different calculus: They would generally have to give up their cheap loans and borrow at today’s much higher rates to move. The state of the housing market has left people on all ends of the housing spectrum unhappy. Renters can’t buy first homes, homeowners can’t trade up and older homeowners are disappointed their adult children can’t afford to live nearby. Source: Wall Street Journal
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Real Estate Nightmare in St. Louis
Downtown St. Louis is trapped in a doom loop. As offices sit empty, shops and restaurants close and abandoned buildings become voids that suck the life out of the streets around them. Locals often find boarded-up buildings depressing and empty sidewalks scary. So even fewer people commute downtown. St. Louis’s central business district had the steepest drop in foot traffic of 66 major North American cities between the start of the pandemic and last summer, according to the University of Toronto’s School of Cities.
When the pandemic broke out in 2020 and millions of employees got used to working from home, pundits predicted the demise of big coastal cities. But office districts in New York, Miami and Boston have bounced back better than skeptics feared. The nascent boom in the artificial intelligence industry is even starting to attract some businesses back to San Francisco. It’s the cities far from the coasts that are suffering most. Six of the 10 U.S. office districts with the steepest drop in foot traffic between 2019 and mid-2023 are in the Midwest, according to the University of Toronto.
Some cause for hope is a short walk away. To the office district’s immediate west, the Downtown West neighborhood boasts loft apartments, a new soccer stadium and a train station-turned-amusement park. These developments have revived a once-abandoned industrial area. To the south, a cluster of bars and restaurants around the Cardinals’ ballpark is often crowded. These neighborhoods show how big developments and apartment conversions can attract residents, which in turn attract bars and restaurants, slowing or even reversing the doom loop. Source: The Wall Street Journal
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Urban Doom Loop Threat Exaggerated
The United States experienced a massive urban exodus in the mid-twentieth century. Businesses, residents, and the tax dollars that accompany them fled for the newly accessible suburbs. Urban centers became a hollowed out, crime-ridden shell of their former selves, not seeing new light for many decades. In today’s climate, employee attendance in offices is still hovering well below pre-pandemic levels, and some urban downtowns like St. Louis and San Francisco are in real trouble. So, is history set to repeat itself? The likely answer is no.
Most urban areas have diversified away from an office-centric model of economic activity and development, and instead have embraced a “mixed-use is best-use” philosophy with a focus on vibrant and attractive public spaces. Residents have responded by repopulating the particular neighborhoods that use this approach, and in some cases doing this despite working in a suburban office. The presence of “reverse commuting” across a variety of US metropolitan areas is evidence that urban enthusiasm is likely higher now than in previous periods.
Complimenting this, child rearing continues to be delayed into later life. This reduces the “family” push to the suburbs; there is now wider-spread wealth within the general urban population, which can act as a buffer to urban ills if and when they do appear. And finally, the number of creative professionals, which tend to have a greater proclivity and/or need for urban living, has increased in recent decades. Due to these changing preferences and characteristics of both the household and the city, urban areas are more resilient to shocks now than in the past. Source: Moody’s
