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9 million homes will come on the market in the next decade as baby boomers age—but the ‘silver tsunami’ will be more of a ‘tide,’ Freddie Mac says

Photo illustration by Fortune

After a wild ride during the pandemic, the housing market froze over last year. Total home sales fell to their lowest level since 2011, mostly because existing home sales plummeted to a nearly 30-year low. There’s simply not enough for-sale inventory. But there’s some hope from baby-boomer households, with a wave of downsizing and declining homeownership rates expected to bring more than 9 million homes onto the market in the next decade, according to Freddie Mac.

Baby boomers are a big deal — in the housing market, at least. Most either own their homes outright or are locked into a low mortgage rate, and generally, their properties are appreciating. In a housing market missing roughly 2 to 7 million homes, boomers are holding onto theirs because mortgage rates more than doubled during the past couple of years.

“Some have warned of a ‘silver tsunami’ as aging boomers look to sell their homes, flooding the market with inventory,” Freddie Mac’s report reads. “But as this analysis demonstrates, the tsunami is more like a tide, bringing a gradual exit that will mostly be offset by new entrants.”

In other words, even as boomers vacate their homes in the coming decade, younger generations will continue to enter the housing market—the Urban Institute projects that 8.5 million new households will be created this decade, and 7.6 million between 2030 and 2040, most of which will need homes. So “total housing demand over the next few years is likely to continue to increase,” Freddie Mac said.

None other than Meredith Whitney, deemed the “Oracle of Wall Street” by Bloomberg in November 2023, predicted that a “silver tsunami” of baby boomers would start downsizing in 2024 and 2025. Whitney said 51% of people over the age of 50 are set to downsize to smaller homes, citing an AARP report at a Yahoo Finance Invest Conference. This move would bring more than 30 million housing units to the market, she said—a figure much higher than Freddie Mac’s and at a pace much faster than the mortgage corporation projects. Whitney, who accurately predicted the 2008 financial crisis, also said this trend will be “rate agnostic,” meaning she expects the supply-demand shift to happen no matter what current market rates are, because “older people have lower mortgage rates, if any mortgage at all.”

There were 69 million baby boomers, accounting for 38% of homeowner households, as of 2022. And they clearly haven’t made it easy for millennials to climb the homeownership ladder. But if boomers follow the patterns of previous generations, their homeownership rate will decline as they get older, particularly as they enter their late 70s, the report said. Freddie Mac predicted that the number of baby boomer households will fall gradually from around 32 million in 2022 to 23 million by 2035, as older boomers near their 90s. “Per this estimate, there will be 9.2 million fewer boomer homeowner households by 2035,” the report said.

That gradual decline is much more modest in this decade before it accelerates in the next, at which point the majority of boomers will be in their 70s and 80s, Freddie Mac says. For instance, by 2028, Freddie Mac estimates there will only be 2.7 million homes freed up.

“In this sense, the silver tsunami is more like a tide, with a gradual reduction phasing in over several years,” Freddie Mac said. “While the number of people aging out of homeownership will increase in the coming years, it is more of an upward sloping trend than a disruptive spike.”

But there is a potential caveat. Homeownership retention rates have increased over time with longer life expectancies and healthier outcomes for older people. The average baby boomer is 67 years old, according to John Burns Research and Consulting, and will live another 21 years. So taking that into account and using a more recent retention rate rather than the historical average, the decline in boomer households “would be closer to one million less,” the report said.

Unlike Whitney, other economists—in line with Freddie Mac’s reasoning—believe the “silver tsunami” won’t be much of a tsunami at all. Rather, it will take a decade or more for boomers to fully start downsizing, which this generation doesn’t typically start doing until about age 80, Mark Fleming, chief economist with Fortune 500 financial services company First American, previously told Fortune. He calls this the “aging out process.” Because the baby boomer generation includes people born between the mid-1940s and mid-1960s, we still have a way to go before all of them are ready to forgo their current housing situation, according to Fleming.

“Baby boomers are staying in their homes longer. They’re wealthier. They’re healthier. They’re able to stay in place longer than generations past,” Fleming said. “And it is true that the cycle of the large baby boomer generation aging out will happen. But not yet.” A Fannie Mae report released Thursday also suggested that baby boomers are content aging in place. Only 17% of older homeowners said they sold their home, or plan to, during retirement, according to Fannie Mae's survey, as the result of both a financial and emotional attachment to their home. What's more is 62% of respondents said their goal is to leave their home to their heirs.

Regardless of the pace of the silver tsunami, or tide, it won’t completely fix housing affordability for younger generations because home prices are already out of reach. While some baby boomers might move into retirement communities, others may opt for smaller homes—the same ones that younger generations want. That could continue to sideline millennials and younger generations, and potentially drive up starter home prices further. Not to mention that baby boomers have more cash on hand, so they’ll be the ones to win out in a bidding war.

“There’s a big overlap between select baby boomers and select millennials,” Ali Wolf, chief economist at Zonda, a distributor of housing market data and consulting, previously told Fortune. “The key difference here is that the baby boomer will likely be able to tap home equity by selling their existing home, allowing them to perhaps make a more compelling offer on the home compared to the millennials, especially if the latter group are still renting.”

This story was originally featured on Fortune.com

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