As the new year begins, we are anticipating a continued generational shift in housing from Baby Boomers (sellers) to Millennials (buyers).
COVID-19 dramatically changed the housing market. Baby Boomers thinking of selling froze their moving plans in 2020 due to unprecedented uncertainty. The thought of moving became fleeting as lockdowns and gathering restrictions became the new norm. Space was at a premium due to the pandemic. Houses became central to our lives as knowledge workers exited communal offices in the city and took up remote work in kitchens, living rooms, bedrooms, and even closets.
Our clients in the Baby Boomer generation told us about kids coming back to live with them, spending extended periods with family, and providing childcare for grandchildren due to daycare closures and safety protocols. Their larger houses, with extra square footage and back yards served them well as their needs for space changed. I experienced this exact scenario with my family.
Wynne and I were empty nesters still living in the home we raised our daughters in. Back in 2019, we found ourselves considering a lifestyle change by moving to DC. Then the pandemic hit. With so much uncertainty of how the virus spread , Wynne and I told our adult kids they had 24 hours to decide if they wanted to move back in with us or stay in their current locations.
Our larger square footage and Wynne’s home cooking prevailed and all three returned home. We were delighted they did.
Wynne and I started with a “quick” road trip to Ann Arbor Michigan to pick up Chloe at her sorority house. Then Gabby, who had just signed a one year lease and moved into her hip, Columbia Heights rowhouse came next. Aliza had little choice as the Peace Corps evacuated her from Ecuador, sending her home a year and a half ahead of schedule. We even picked up one guest as Chloe’s boyfriend would have been stuck in a small condo so we welcomed him as well. We made him bring his guitar for family sing alongs.
Wynne and I went from two to six adults all living under one roof in just 48 hours. We were grateful to have the space to host everyone. We made the most of a challenging situation and ended up sharing moments we will cherish forever. Our experience was similar to that of many other Baby Boomers.
Over the next several months, as we got more acclimated to our new environment, the housing market went from completely frozen to on fire in an unprecedented period of time.
The market for single family houses soared as Millennials, the other end of the generational spectrum, entered the market in droves.
The Millennials generation was predisposed to buy their first house later in life, stay in the city longer, and preferred smaller, greener homes over larger ones. The pandemic changed all of that fast as living in the city was no longer as fun and larger houses became much more practical than smaller ones. Home offices, home gyms and back yards became the premium focus for new home buyers.
We had buyer clients that had hired us pre pandemic to help them buy their first home. Their typical criteria was, stay in DC, 2 – 3 bedrooms,walkability to shops and metro, and keep their commute to under 20.
Those same clients, within a few months, modified their criteria to wanting a home office or two, were less concerned with commute times, and were now willing to buy in the suburbs over the city to get more space. Those thinking of buying in a high rise condo put everything on hold.
As Millennial buyers got excited about moving out of their smaller rental units and buying their first home, they were immediately hit with the realization that there were very few homes available for sale. This was happening because the Baby Boomer generation was choosing not to sell exactly at the time the Millennials wanted to buy.
When a well priced home hit the market, about 40% of them received more than one offer and sold fast. Fear of getting priced out set in fast amongst these first time buyers and they got more aggressive with their offers. Bidding wars with high escalation clauses became the norm and this fueled unprecedented price appreciation during 2021.
In addition to price, the terms buyers needed to offer to win became extremely one sided in the favor of the seller. If a house received 6 or more offers, the winning offer would typically be ALL CASH, AS IS, NO CONTINGENCIES. We had a millennial buyer who was ready to move out of her rental and own something for herself, but prices were going up so quickly that coming up with the down payment was a challenge and there was no way she could make an ALL CASH offer. Her Baby Boomer parents came to the rescue and offered to help.
This happened far more often than you would think. About 33% of first-time buyers and 8% of repeat buyers got a gift from their parents and/or had parents that stepped in so that their kids could make an ALL CASH offer. In the end, the kids still got the loan, but the only way they could win the deal was through mom and dad’s promise of financial support if they could not get a loan. Over the last 18 months, our team saw a lot of these intergenerational partnerships where the older generation guaranteed the financing of the younger generation’s purchase.
Ironically, it’s the demand by the Millennial generation that pushed up the value of the Baby Boomer’s homes, and now the Boomers need to step in financially so their Millennial kids can buy.
