It’s no secret that home prices have skyrocketed in recent years. A lack of housing supply relative to demand, coupled with a rise in inflation and interest rates, has kept the median home sale price much higher than before the COVID-19 pandemic.
But that doesn’t mean no one is buying. Real estate is still a lucrative market, and there are more people seeking housing than there is housing available to purchase.
So who is driving the rise in real estate? Recent data seems to say it’s cash buyers and baby boomers.
Boomers and Cash Buyers Are Leading the Market
With housing affordability at near-record lows, the market has been challenging, especially for some first-time buyers. Interest rates have risen, increasing the median monthly payment to almost $2,000, nearly double what it was in 2020, according to the National Association of Realtors (NAR).
So what about those cash buyers and baby boomers? Nearly a third of U.S. home purchases were recently made with cash, according to real estate data group Redfin.
And for the first time since 2014, baby boomers have overtaken millennials as homebuyers, according to the NAR’s latest Home Buyers and Sellers Generational Trends report.
From July 2021 to July 2022, 39% of surveyed buyers were baby boomers, compared to just 29% the year prior. In comparison, millennials accounted for just 28% of homebuyers last year.
The rise of baby boomers as homebuyers has been pushed by a few deciding factors. The biggest driver is the desire to move closer to friends and family. And as their children have moved out, baby boomers have wanted to downsize their homes.
Boomers are also better equipped financially to handle the rise in real estate prices. They hold the greatest wealth across generations, with $78.3 trillion in assets.
And because they often downsize, many baby boomers can afford to pay in cash. Only 49% of older boomers financed their home purchase in 2022, compared to 93% of 33 to 42-year-olds.
Where Are They Going?
According to data from Bank of America’s Housing Morsel report, boomers are relocating to areas with better weather and more entertainment, like Las Vegas, Phoenix, and Tampa, Florida, and leaving larger, more expensive U.S. cities like the Bay Area, New York, and Seattle.
Las Vegas offers retirees numerous senior living communities, endless amenities, and is in a tax-friendly state. Meanwhile, Phoenix’s warm population and reasonably low taxes have been luring retirees. And Tampa has been a go-to retirement destination for decades—and it seems the trend won’t reverse anytime soon.
The Bank of America data also found that domestic migration trends that started in 2020 have continued in the second quarter of 2023, with cities that saw a large influx during the pandemic continuing to grow. Austin, Texas, leads the pack, followed by Tampa and Orlando in Florida, as well as Cleveland.
However, Austin has been more popular with younger generations, especially millennials, while baby boomers have been leaving the city over the past year.
The change in Austin’s demographics could be one reason why home prices in the city have fallen while rent prices have increased, as younger generations have been priced out of the housing market in recent years.
Conclusion
So, what does all this mean to real estate investors?
It’s clear that the people driving the real estate market these days are baby boomers. With the largest wealth across generations, baby boomers can and are downsizing their homes and moving to areas with better weather and lower tax rates. Coupled with the fact that many can also afford to buy in cash, it’s no wonder they are leading the charge to sunnier states.
Interested in finding out more about selling your home in today’s baby boomer market? Check out this seller financing strategy for baby boomers.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.