How Your Parents’ House Makes Buying A First Home Harder

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You wouldn’t think that your parents holding on to your childhood home would affect the price of your home, but it does! In an eye opening piece in the Washington Post today, Kenneth R. Harney writes that while previous generations have downsized once their children reach adulthood, many baby boomers are staying put, which is to an existing crunch for people looking to buy those same homes. This not only creates a shortage of single-family homes in some areas, pushing up housing prices, but it helps to consolidate their dominance in real estate wealth—the Federal Reserve estimates that households headed by people over the age of 55 control two-thirds of all home equity in the US. Home equity is closely associated with the amount of wealth of a family.

According to Realtor.org, listings were down three percent and home prices up six percent nationally. “Three percent doesn’t sound like much,” Harney writes. “But check out the shortages and price increases in a few major markets

● Seattle listings as of October were down 19.1 percent, while median list prices had jumped by 10.3 percent.

● San Diego listings dropped by 16.4 percent; median prices rose by 13 percent.

● Charlotte listings declined by 9.8 percent; median prices were up by 12.8 percent.

● Salt Lake City listings were down by 23.4 percent; prices were up by 10.2 percent.”

Competitive emerging cities where real estate is becoming more desirable, often thanks to growth in high-paying industries, are feeling the pinch in a big way. Median home price jumps of ten-percent plus obviously puts a major strain on first time home buyers who must save more for a down payment. But market pressure at this level also puts the irons to building developers, who need to factor land prices into building costs. Higher building costs lead to higher rents or sale prices on new development to turn a profit—as well as less new development in areas that are experiencing a housing shortage already—which further exacerbates problems with high cost of living.

Current homeowners who have equity in their properties have a clear advantage when it comes time to purchase a home, so what is stopping them? It’s tough to tell from afar, but several contributing factors could be at play: adult age children living at home, or adult age children who visit frequently due to stronger generational ties between boomers and Millennials, or anxiety about the market in the aftermath of the crash. It’s also difficult to gauge when the natural order will reset itself and boomers will start selling family-ready homes to the new generation. When their circumstances change though, which Harney is quick to note they inevitably will, with age — watch out. When a massive generation with the majority of equity wealth starts to move, the market is certain to reverberate.