possible real estate consequences from the approaching great transfer of wealth

[clarkfan1979]

I have two predictions below. Let me know what you think.

As boomers die off and leave money to their kids, the kids are going to compete against similar peers to buy houses in the best neighborhoods (Class A). I have two predictions below.

1) Class A properties are going to have the lowest correlation between wages and purchase price because inherited money will play a larger role.
2) Appreciation of houses in "Class A" neighborhoods will appreciate at a higher percentage rate than "Class B" or "Class C" neighborhoods.

Baby Boomers are age 60-78 in the year 2024. The average life expectancy is 80 years old. The timeline for these predictions are 2026 to 2046. 

[swashbucklinstache]

The social security administration expects someone who is currently 60 to live to 83. If they are currently 78 they are expected to live to 88. That puts the range as you calculated it at 2034-2047.

I have no data to ground this but think flocking to cities and wealth concentration will drive Class A higher. But, that the overall economy will have a bigger impact than anything. I have no prediction on the economy from 2026-2047 relative to recent history. My personal guess is SFH will offer a good return or at least store of value over 10-20 years in the US and doubly so for desirable areas.

My prediction is worth what you paid for it.

[halfling]

And then later, when I'm 70, what few young folks there are will have the run of the real estate market and prices will be about the same as they are today due to a glut of supply and dried up demand. Or maybe not. I am personally hoping to I'll be living with all my old friends in a dorm with free foosball and a dozen community-owned cats.

[srad]

The average net worth for the boomer is around 1 mil.  Most boomers have more than one kid, so 3-500k to each sibling. I don't see the kids using all that money just to buy in the spendy part of town.  Plus when boomers die, their kids should be fairly old themselves even empty nesters now.  That's not really the time to move into the best school district type of neighborhood. And as we all know, moving sucks.

I'm thinking if someone was to use their inheritance on real estate, it would be renovations on their current place vs buying something else. 

[GilesMM]

What is Class A? B? C?

[Paper Chaser]

The average net worth for the boomer is around 1 mil.  Most boomers have more than one kid, so 3-500k to each sibling. I don't see the kids using all that money just to buy in the spendy part of town.  Plus when boomers die, their kids should be fairly old themselves even empty nesters now.  That's not really the time to move into the best school district type of neighborhood. And as we all know, moving sucks.

I'm thinking if someone was to use their inheritance on real estate, it would be renovations on their current place vs buying something else.

Yeah, a boomer parent that lives until age 80 probably has a kid that's in their 50s. And that assumes that the house isn't liquidated (at whatever market rate may be) to pay for end of life care.

[iris lily]

And then later, when I'm 70, what few young folks there are will have the run of the real estate market and prices will be about the same as they are today due to a glut of supply and dried up demand. Or maybe not. I am personally hoping to I'll be living with all my old friends in a dorm with free foosball and a dozen community-owned cats.

No. I want my own cat.🐈

I wouldn’t mind the tiny room of a dorm, but I’ve gotta have my own room and a little garden space. And my own cat don’t forget that.

[Morning Glory]

What is Class A? B? C?

Places where rich people live are seen as better investments and get more amenities, so more rich people move there.  It has racist origins (banks used to deny mortgages in certain neighborhoods based on the race of the majority of inhabitants) and continues to perpetuate segregation and inhibit social mobility even though denial based solely on race is no longer allowed.  If your ancestors weren't allowed to buy in an "A" neighborhood you will likely have less generational wealth than someone whose ancestors were. You were also likely exposed to more pollution growing up.  It's kinda sickening that the letter grade terminology is still being used.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10427113/

"In the 1930s, the government sanctioned Home Owners’ Loan Corporation (HOLC) was created to stabilize the housing market during the Great Depression. As a means to limit foreclosure risk, the HOLC created color-coded security maps of more than 200 United States cities according to the risk of investing in certain neighborhoods.(Bell 1986) Neighborhood grading was largely based on racial/ethnic composition, built environment, and housing conditions. The HOLC maps color-coded neighborhoods as follows: A (“best” or green), B (“still desirable” or blue), C (“definitely declining” or yellow) and D (“hazardous” or red). This approach resulted in neighborhood “redlining” and can serve as an indicator of intentional and protracted racially directed inequities in economic and social investm"

[Jon Bon]

Grandpa did pretty well for himself. He lived a good long life, spent his money on what he wanted. Unfortunately after grandma died, his body lived longer then his mind, and even that became increasingly frail.

I think we spent ~150-300k a year on care for the last 5 years of his life? He had the money, there was no reason not too. We made him as comfortable as possible, we paid for a nursing home AND an aide that was a blessing who looked just after grandpa.  It was not our money (but it was his kids decision of course). So yes we could have done it "cheaper" but that was hardly the point. 

I think he died with <600,000 of his fortune left. He had 6 kids so no one got rich, and his kids were all in their 60s and 70s.

I guess what I am saying is much of this wealth transfer is going to be into the health care industry.

Miss ya Bob! You had a good 99 years!

 

[YttriumNitrate]

The average net worth for the boomer is around 1 mil.  Most boomers have more than one kid, so 3-500k to each sibling. I don't see the kids using all that money just to buy in the spendy part of town.  Plus when boomers die, their kids should be fairly old themselves even empty nesters now.  That's not really the time to move into the best school district type of neighborhood. And as we all know, moving sucks.

“There are three kinds of lies: Lies, Damned Lies, and Statistics”

While the average net worth may be around a million, the median is closer to 200k. [https://www.msn.com/en-us/money/personalfinance/reasons-why-so-many-baby-boomers-got-rich/ar-AA1ld5BJ] Since Bill Gates' kids probably won't be buying more than a few houses each, it's more appropriate to use median net worth rather than average net worth in this instance.

[Michael in ABQ]

My parents are among the oldest boomers (my dad may technically be from the previous generation) and myself and my siblings are later 30s to mid 40s. Both my siblings already own houses within a half-mile of my parents and we're 1,000 miles away. When they die their house (that they originally bought in 1976 for $32k and is now paid off and worth $450-500k) will be likely be sold and the proceeds split amongst my siblings and I - assuming it's not done earlier to pay for end of life care. So some of that wealth will transfer to us Gen X/Millennials but there will also be a new home on the market. By that point we'll probably be in our 40s and 50s and not really need $100-200k each. It will be nice, but not life-changing.

My mother-in-law just received an inheritance in the 6 figures from her father who died several years ago but his house in California just sold recently (step mom had a life estate). It's a nice windfall for them but they bought their current home 15 years ago and have no reason to move or put that money into the real estate market.

[srad]

The average net worth for the boomer is around 1 mil.  Most boomers have more than one kid, so 3-500k to each sibling. I don't see the kids using all that money just to buy in the spendy part of town.  Plus when boomers die, their kids should be fairly old themselves even empty nesters now.  That's not really the time to move into the best school district type of neighborhood. And as we all know, moving sucks.

“There are three kinds of lies: Lies, Damned Lies, and Statistics”

While the average net worth may be around a million, the median is closer to 200k. [https://www.msn.com/en-us/money/personalfinance/reasons-why-so-many-baby-boomers-got-rich/ar-AA1ld5BJ] Since Bill Gates' kids probably won't be buying more than a few houses each, it's more appropriate to use median net worth rather than average net worth in this instance.

Yea yea yea....  The point I was trying to make was, even if there's a mil net worth.  Its not life changing money once split among the siblings.. 1 mil or 200k split = not moving to an expensive area.

[GilesMM]

What is Class A? B? C?

Places where rich people live are seen as better investments and get more amenities, so more rich people move there.  It has racist origins (banks used to deny mortgages in certain neighborhoods based on the race of the majority of inhabitants) and continues to perpetuate segregation and inhibit social mobility even though denial based solely on race is no longer allowed.  If your ancestors weren't allowed to buy in an "A" neighborhood you will likely have less generational wealth than someone whose ancestors were. You were also likely exposed to more pollution growing up.  It's kinda sickening that the letter grade terminology is still being used.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10427113/

"In the 1930s, the government sanctioned Home Owners’ Loan Corporation (HOLC) was created to stabilize the housing market during the Great Depression. As a means to limit foreclosure risk, the HOLC created color-coded security maps of more than 200 United States cities according to the risk of investing in certain neighborhoods.(Bell 1986) Neighborhood grading was largely based on racial/ethnic composition, built environment, and housing conditions. The HOLC maps color-coded neighborhoods as follows: A (“best” or green), B (“still desirable” or blue), C (“definitely declining” or yellow) and D (“hazardous” or red). This approach resulted in neighborhood “redlining” and can serve as an indicator of intentional and protracted racially directed inequities in economic and social investm"

Wow, I had never heard of these classes.  Are there maps which show them?  How do I know which I live in?  They seem to be based mostly on environmental qualities (distance to air, water, soil contamination or noise) so I suppose it would be easy to automate the mapping.

[Chris Pascale]

No. I want my own cat.🐈

https://en.wikipedia.org/wiki/You%27ll_own_nothing_and_be_happy

[Michael in ABQ]

What is Class A? B? C?

Places where rich people live are seen as better investments and get more amenities, so more rich people move there.  It has racist origins (banks used to deny mortgages in certain neighborhoods based on the race of the majority of inhabitants) and continues to perpetuate segregation and inhibit social mobility even though denial based solely on race is no longer allowed.  If your ancestors weren't allowed to buy in an "A" neighborhood you will likely have less generational wealth than someone whose ancestors were. You were also likely exposed to more pollution growing up.  It's kinda sickening that the letter grade terminology is still being used.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10427113/

"In the 1930s, the government sanctioned Home Owners’ Loan Corporation (HOLC) was created to stabilize the housing market during the Great Depression. As a means to limit foreclosure risk, the HOLC created color-coded security maps of more than 200 United States cities according to the risk of investing in certain neighborhoods.(Bell 1986) Neighborhood grading was largely based on racial/ethnic composition, built environment, and housing conditions. The HOLC maps color-coded neighborhoods as follows: A (“best” or green), B (“still desirable” or blue), C (“definitely declining” or yellow) and D (“hazardous” or red). This approach resulted in neighborhood “redlining” and can serve as an indicator of intentional and protracted racially directed inequities in economic and social investm"

Wow, I had never heard of these classes.  Are there maps which show them?  How do I know which I live in?  They seem to be based mostly on environmental qualities (distance to air, water, soil contamination or noise) so I suppose it would be easy to automate the mapping.

There are some common characteristics of real estate development that are present in almost every city and have nothing to do with race.

Lower elevation = poorer (risk of flooding, insects near water, smoke/pollution settling in lower areas, etc.)
Higher elevation = richer (better views, no risk of flooding, etc.)

Downwind or close proximity to industrial areas or sewer treatment plant = poorer
Upwind or close proximity to industrial areas or sewer treatment plant = richer

[GilesMM]

What is Class A? B? C?

Places where rich people live are seen as better investments and get more amenities, so more rich people move there.  It has racist origins (banks used to deny mortgages in certain neighborhoods based on the race of the majority of inhabitants) and continues to perpetuate segregation and inhibit social mobility even though denial based solely on race is no longer allowed.  If your ancestors weren't allowed to buy in an "A" neighborhood you will likely have less generational wealth than someone whose ancestors were. You were also likely exposed to more pollution growing up.  It's kinda sickening that the letter grade terminology is still being used.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10427113/

"In the 1930s, the government sanctioned Home Owners’ Loan Corporation (HOLC) was created to stabilize the housing market during the Great Depression. As a means to limit foreclosure risk, the HOLC created color-coded security maps of more than 200 United States cities according to the risk of investing in certain neighborhoods.(Bell 1986) Neighborhood grading was largely based on racial/ethnic composition, built environment, and housing conditions. The HOLC maps color-coded neighborhoods as follows: A (“best” or green), B (“still desirable” or blue), C (“definitely declining” or yellow) and D (“hazardous” or red). This approach resulted in neighborhood “redlining” and can serve as an indicator of intentional and protracted racially directed inequities in economic and social investm"

Wow, I had never heard of these classes.  Are there maps which show them?  How do I know which I live in?  They seem to be based mostly on environmental qualities (distance to air, water, soil contamination or noise) so I suppose it would be easy to automate the mapping.

There are some common characteristics of real estate development that are present in almost every city and have nothing to do with race.

Lower elevation = poorer (risk of flooding, insects near water, smoke/pollution settling in lower areas, etc.)
Higher elevation = richer (better views, no risk of flooding, etc.)

Downwind or close proximity to industrial areas or sewer treatment plant = poorer
Downwind or close proximity to industrial areas or sewer treatment plant = richer

Not sure those apply universally.  I know several large cities abroad with mountains and beaches where the high dollar areas are beach front and the slums get worse the higher you go on the hillsides.  Or in Bogota, even without beaches, higher hill locations are economically worse.  I would imagine even in Florida the priciest real estate is the lowest.


Most industrial areas are less desirable, but depends on what else they are near.  The real estate around LAX airport and the horrendous El Segundo refinery is some of the priciest in Los Angeles partly because of the great beaches nearby at Manhattan and Hermosa.

[NorthernIkigai]

In older cities (think medieval-ish), the "higher up is more fancy" rules definitely held, and often still holds to this day. This is because there were no sewers, so everything flowed downwards...

[Michael in ABQ]

What is Class A? B? C?

Places where rich people live are seen as better investments and get more amenities, so more rich people move there.  It has racist origins (banks used to deny mortgages in certain neighborhoods based on the race of the majority of inhabitants) and continues to perpetuate segregation and inhibit social mobility even though denial based solely on race is no longer allowed.  If your ancestors weren't allowed to buy in an "A" neighborhood you will likely have less generational wealth than someone whose ancestors were. You were also likely exposed to more pollution growing up.  It's kinda sickening that the letter grade terminology is still being used.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10427113/

"In the 1930s, the government sanctioned Home Owners’ Loan Corporation (HOLC) was created to stabilize the housing market during the Great Depression. As a means to limit foreclosure risk, the HOLC created color-coded security maps of more than 200 United States cities according to the risk of investing in certain neighborhoods.(Bell 1986) Neighborhood grading was largely based on racial/ethnic composition, built environment, and housing conditions. The HOLC maps color-coded neighborhoods as follows: A (“best” or green), B (“still desirable” or blue), C (“definitely declining” or yellow) and D (“hazardous” or red). This approach resulted in neighborhood “redlining” and can serve as an indicator of intentional and protracted racially directed inequities in economic and social investm"

Wow, I had never heard of these classes.  Are there maps which show them?  How do I know which I live in?  They seem to be based mostly on environmental qualities (distance to air, water, soil contamination or noise) so I suppose it would be easy to automate the mapping.

There are some common characteristics of real estate development that are present in almost every city and have nothing to do with race.

Lower elevation = poorer (risk of flooding, insects near water, smoke/pollution settling in lower areas, etc.)
Higher elevation = richer (better views, no risk of flooding, etc.)

Downwind or close proximity to industrial areas or sewer treatment plant = poorer
Downwind or close proximity to industrial areas or sewer treatment plant = richer

Not sure those apply universally.  I know several large cities abroad with mountains and beaches where the high dollar areas are beach front and the slums get worse the higher you go on the hillsides.  Or in Bogota, even without beaches, higher hill locations are economically worse.  I would imagine even in Florida the priciest real estate is the lowest.


Most industrial areas are less desirable, but depends on what else they are near.  The real estate around LAX airport and the horrendous El Segundo refinery is some of the priciest in Los Angeles partly because of the great beaches nearby at Manhattan and Hermosa.

I forgot about beaches. I've never lived near the coast so that's a bit of a blind spot. However, take those out of the equation and it will hold pretty true in most US cities. It probably won't apply globally in every case as development patterns in other countries can be very different - i.e. not a lot of 500-1,000-year-old city centers in the US to build around and we also don't have favelas spreading out from the city core.

[halfling]

And then later, when I'm 70, what few young folks there are will have the run of the real estate market and prices will be about the same as they are today due to a glut of supply and dried up demand. Or maybe not. I am personally hoping to I'll be living with all my old friends in a dorm with free foosball and a dozen community-owned cats.

No. I want my own cat.🐈

I wouldn’t mind the tiny room of a dorm, but I’ve gotta have my own room and a little garden space. And my own cat don’t forget that.

I figure the cats will each naturally gravitate to the resident that they wish to have as their companion.

[clarkfan1979]

What is Class A? B? C?

Places where rich people live are seen as better investments and get more amenities, so more rich people move there.  It has racist origins (banks used to deny mortgages in certain neighborhoods based on the race of the majority of inhabitants) and continues to perpetuate segregation and inhibit social mobility even though denial based solely on race is no longer allowed.  If your ancestors weren't allowed to buy in an "A" neighborhood you will likely have less generational wealth than someone whose ancestors were. You were also likely exposed to more pollution growing up.  It's kinda sickening that the letter grade terminology is still being used.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10427113/

"In the 1930s, the government sanctioned Home Owners’ Loan Corporation (HOLC) was created to stabilize the housing market during the Great Depression. As a means to limit foreclosure risk, the HOLC created color-coded security maps of more than 200 United States cities according to the risk of investing in certain neighborhoods.(Bell 1986) Neighborhood grading was largely based on racial/ethnic composition, built environment, and housing conditions. The HOLC maps color-coded neighborhoods as follows: A (“best” or green), B (“still desirable” or blue), C (“definitely declining” or yellow) and D (“hazardous” or red). This approach resulted in neighborhood “redlining” and can serve as an indicator of intentional and protracted racially directed inequities in economic and social investm"

Wow, I had never heard of these classes.  Are there maps which show them?  How do I know which I live in?  They seem to be based mostly on environmental qualities (distance to air, water, soil contamination or noise) so I suppose it would be easy to automate the mapping.

There are some common characteristics of real estate development that are present in almost every city and have nothing to do with race.

Lower elevation = poorer (risk of flooding, insects near water, smoke/pollution settling in lower areas, etc.)
Higher elevation = richer (better views, no risk of flooding, etc.)

Downwind or close proximity to industrial areas or sewer treatment plant = poorer
Downwind or close proximity to industrial areas or sewer treatment plant = richer

Not sure those apply universally.  I know several large cities abroad with mountains and beaches where the high dollar areas are beach front and the slums get worse the higher you go on the hillsides.  Or in Bogota, even without beaches, higher hill locations are economically worse. I would imagine even in Florida the priciest real estate is the lowest.


Most industrial areas are less desirable, but depends on what else they are near.  The real estate around LAX airport and the horrendous El Segundo refinery is some of the priciest in Los Angeles partly because of the great beaches nearby at Manhattan and Hermosa.

I lived in Fort Myers, FL for four years. I have "friends" that still live in Fort Myers. Houses at higher price points will spend extra money to build the foundation higher so the house is less likely to flood and you also avoid flood insurance.

One of my friends lives on a canal near the Caloosahatchee River and pays flood insurance. About 10% of the houses in the neighborhood flooded during hurricane Ian, including my friends house. My friends house got about 12 inches of water in the house. Each neighbor on each side has their house about 2 ft. higher, so their houses didn't flood.

The house is all fixed up now and looks very nice. They listed the house last week for 850K, even though it's only worth about 650K. No showings, no calls, nothing. When someone has to pay an additional $1,000/month in flood insurance it's the equivalent of 150K in purchasing power. They don't seem to understand that concept when making comps.     

[SilentC]

Clarkfan is probably right about Class A on the margin, but I’ll throw a scenario out there, older boomers just got their faces ripped off on their 40%-50% bond allocations, and S&P underperforms or barely keeps up with inflation over the next decade as the AI rally fizzles and the Fed allows higher inflation trying to balance not wanting a big recession and a ballooning debt.  A lot of big portfolios today could be pretty meager inheritances.