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There’s a peculiarly flawed logic behind the widely held view that the Baby Boomers will seamlessly transfer tens of trillions of dollars of their wealth to the Gen-X and Millennial generations as they exit stage left.
This is flawed for a very basic reason: the extremely overvalued assets that will be transferred – real estate and stocks – only reached such extreme overvaluation because there is a surplus of buyers who are sufficiently wealthy (and willing) to pay bubble-inflated prices.
And what happens when those buyers disappear?
Baby Boomers own 42 per cent of real estate – and nobody can afford to buy it.
[…] If buyers are scarce due to entrenched wealth-income inequality, then once Boomers start selling their vast holdings of stocks and millions of overpriced homes, prices will plummet if sellers outnumber qualified and willing buyers.
Supply and demand 101.
Younger generations hoping to inherit million-dollar McMansions and stock portfolios overlook that many aging Boomers are planning to sell their stocks and homes to fund their retirement.
Another overlooked factor is inheritances often require selling the house to split the money between heirs. Once again, the inheritance depends on buyers emerging like locusts to buy up every house being sold at absurdly overvalued prices.
[…] If we consider the vast concentration of wealth in the top 10% (typically the wealthiest Boomers), it’s clear there aren’t enough young people who can afford to buy assets at today’s valuations to keep the prices at nosebleed levels.
[…] Boomers own 42 per cent of all real estate value, with Gen Xers holding 30 per cent and Millennials owning 14 per cent.
So the expectation that nosebleed valuations for houses and stocks will remain at a ‘permanently high plateau’ is based on flawed reasoning that Millennials will be buying millions of homes being dumped by Boomers to fund their retirement at today’s prices.
This buying by Millennials will maintain the high valuations of homes and stocks they will eventually inherit – possibly far later in their own lives than they anticipate. This doesn’t add up.
[…] The concentration of wealth in the top 10 per cent and the Boomer generation means there cannot possibly be enough buyers in the ranks of those with few assets, high debt loads, and modest incomes with sufficient wealth and income to buy Boomer assets at today’s bubble prices.
Too few buyers, too many overpriced assets.
[…] Absent demand from tens of millions of wealthy, high-income buyers, asset valuations will fall as Boomers sell assets to fund their retirement. In many cases, the wealth younger people hope to inherit will be consumed by costly nursing home fees.
Which is an important point. Even if every Boomer decided not to spend their retirement on cruises, holidays and travelling around the world, there still isn’t going to be even a fraction of the expected wealth left.
[…] But those valuations will only be reaped by the first sellers. Everyone selling as demand falters due to insufficient numbers of buyers who can afford to pay today’s prices will find valuations will fall once selling overwhelms demand.
The expectation that tens of trillions of dollars in assets whose value is set on the margins will magically retain their bubble valuations as aging Boomers liquidate their assets en masse in an economy where only 20% of the populace can afford to buy a house at today’s prices is not grounded in demographic or financial realities.
So to all you Millennials and GenZers, the Great Trillion Dollar Wealth Transfer is not the fairy tale you’re hoping for. Instead, it’s looking more like a slow-motion market correction waiting to happen.
The Great Trillion Dollar Wealth Transfer? Sorry kids: ain’t going to happen.
Source: https://www.yourtango.com/self/boomers-own-real-estate-nobody-can-afford-to-buy
