Baby boomers: Sell now or forever hold your family home

As we look back on 2011, Property Observer is republishing some of our most noteworthy observations of the year.

Baby boomers are facing an enormous challenge. And the sad fact is that they are probably not even aware of the problem.

You see, if they haven’t sold their traditional inner-suburban homes before 2012 they need to be prepared to hold onto them until 2025, because there simply won’t be a market for that type of property before then.

Unlike their parents, boomers will not wait until they are about to be carried out of their present homes before deciding to move. No, they see the next 20 to 30 years as a new chapter in their lives – where they'll want to downsize and start living for themselves.

Sure, they may need to crowbar the kids out first. Or maybe just move to an apartment or a townhouse with a couple of spare bedrooms.

Either way, they are about to start their decision process and will be doing it en masse. And therein lies the problem, when it comes to selling the traditional family home.

The problem is not that there will be any fewer buyers. Rather, that there will be about five times as many of these types of properties on the market over the next 12 to 15 years.

What exactly does this mean?

Despite residential property being currently on the doldrums, statistics tell us that about 60% of the average household wealth is tied up in your family home.

As such, the baby boomers’ equity is now at risk. And, potentially, this will affect them in one (or more) of three ways:

1. Those who have used their equity to finance pre-retirement property investments could well discover they actually have a negative equity in the family home.

2. They suddenly discover that the funding for their retirement plans could come up rather short.

3. The inheritance their children are expecting could be significantly reduced.

As you can appreciate, there could well be a number of people who might not be aware they have a problem, and may, quite unwittingly, are leaving themselves exposed.

Please understand that you're certainly not talking about "trophy" homes here. It is principally those three- to five-bedroom homes in the inner-middle suburbs of Brisbane, Sydney and Melbourne within the $1 million to $4 million price bracket.

These homes in some cases may have been last renovated 30 years ago, and now they represent mainly land value.

For Brisbane, this would involve suburbs like Bardon, Mount Coot-tha, Stafford, Ascot, Mount Gravatt and Woolloongabba.

For Sydney, it would include Mosman, Chatswood, Roseville, Killara, Gordon, Warrawee and Turramurra.

And for Melbourne, suburbs like Kew, Camberwell, Hawthorn, Armadale, Malvern, East Malvern, Brighton, Elwood and Sandringham.

Historically, your family home has been considered to be a de facto part of your superannuation. However, as a Baby Boomer that could well prove to be a myth — unless you make the move to downsize early, and beat the rush.

All the financial crisis has done is delay the start of this process a year or two, due to the general uncertainty.

As a general comment, during this period, the baby boomers will tend to live where they now holiday, and holiday where they now live. So in the city they will seek a scaled-down version of the level of comfort they now enjoy – preferably in the same neighbourhood.

The concept of a retirement village is not on their agenda, but the boomers haven’t really thought through their ongoing needs. Likewise, developers are not seriously addressing the key issues involved.

Unlike their parents, who generally left their downsizing until their frailest years, Baby Boomers will make their move while they are still fit. And they will probably not plan to move again.

The baby boomers’ relative fitness (or perhaps being in denial about growing old) that will cause them to choose their new home, while paying scant regard to becoming less mobile or becoming suddenly lonely when one partner dies.

Therefore, in order for their new downsized home to have enduring value, baby boomers need to pay close attention to both their physical and community needs.

While this may represent quite a challenge it also provides a fruitful niche market for the astute developer.

Chris Lang is an advisor to commercial property investors and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.