Thursday, September 17, 2009

What would happend if the R/E market was flooded with listings?

The Rainforest Roundtable held it's monthly meeting last night.

Amid beer, B-B-Q and rain (fall is officially here), we were discussing the parents of one of our group.

As the youngest member of our little fraternity, Robert's parents are at the forefront of the Boomer generation and have only just retired last year. Their story is one that will most certainly be repeated over and over in the years to come.

Asset rich and cash poor, they are comfortable and their pensions allow them to make ends meet. But they are far from being considered 'rich' in so far as their bank accounts go... at least until now.

It has long been their plan to sell their spacious Kitsilano home and 'downsize'. Bought in the early 1970s for $86,000, the property was sold last week for $1.7 million dollars.

The sale was the culmination of a deliberate retirement strategy.

Our roundtable colleague freely admits his parents have never been great savers. Spending what they have and 'enjoying life', their plan has long been to use their massively appreciated home as their retirement fund.

After taking a scare over the past winter, they are overjoyed to see the market recover allowing them to capitalize on their plans to sell at the 'proper price'.

It is a retirement strategy common to many boomers.

Surveys consistently show about 85% of all the family net worth in the country sits in residential real estate.

59% of all Canadians are living paycheque to paycheque. In fact for many Canadians, if they miss one single paycheque by a single week, they wouldn’t be able to make ends meet at all. Compound that with surveys that show half of Canadians are incapable of saving 5% of their income, and the 'home as retirement fund' plan is common to many boomers.

Why? Because it's all about 'living the lifestyle'.

Statistics consistently show that a majority of Canadians have no retirement savings and don’t expect to get any.

They are like Robert's parents. Their house is their retirement fund. 85% of all family net worth in this country is tied up in the family home.

Can you see what looms on the horizon?

The first year of the boomer generation turns 65 this year. Our aging Canadian population is inching towards retirement. And the younger Gen X's are a much smaller group.

With each passing year more and more retiring Boomers will be enacting their retirement strategy just like Robert's parents. For the next 20 years wave after wave of boomers will retire.

Meaning that, with each successive year, we will see wave after wave of homes listed to finance underfunded retirement plans.

Who will buy them all?

This alone is going to trigger significant downward pressure on housing prices.

And then there is interest rates. Have we mentioned what this might do to the market?

You really don't need a market oracle to see how this is going to play out.


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