The retirement of baby boomers will not only affect the US, but also many countries around the world. This has many significant public policy implications for the future.

A draft version of the baby boom study [SmartMoney] covering this phenomenon was recently completed by Decision Economics that found:

Over the next 10 years, the American work force will become increasingly tight as the approximately 77 million members of Generation Baby Boom retire, according to the report. When these folks leave their jobs, they’ll be so hard to replace that the U.S. economy will grow at a significantly slower pace than it has been in the last 10 years.

Here’s a draft of the study (pdf) [Brookings Institution]

The predictions in the study:

  • an average growth rate in the next 10 years that’s 0.3% slower than it would be without the boomers leaving.

  • the slowed economic output puts pressure on the standard of living.

  • higher inflation, and with that comes higher interest rates, which makes housing more costly.

  • a smaller labor force.

  • Boomers’ mass retirement will not lead to a lengthy bear market. Companies catering to the aging-boomer niche will be part of a burgeoning industry. New industries tend to spring up out of major demographic shifts.

The concern for housing as it relates to baby boomers is the fact that there will be a smaller demographic to buy the houses sold by the boomer generation. They are currently driving the second home market. Higher interest rates and lower demand because of fewer buyers could keep property appreciation tempered.

4 Responses to “Baby Boomers May Turn Out To Be A Bust”

  1. Larry Littlefield says:

    At the end of the 1980s boom, when the baby boomers were shifting from entry level housing to family housing, condos and coops suffered a greater decline in real price than one-family homes.

    This time, with the boomers (and their children) perhaps looking for smaller, more convenient units, perhaps its the McMansions on the exurban fringe that will take the bigger hit.

  2. Robert Schwartz says:

    Retire? Boomers retire?

    Are you kidding. How can they retire? They have no savings. They have lived over their heads and off their credit cards. Their pension plans are gone. They can not begin to afford to retire.

  3. Joel Burslem says:

    Great post, as the boomers retire maybe it’s time to Meet the new real estate customer…