In 1989 I finished writing Serving the Ageless Market (SAM), a book devoted to the cause of effective marketing in older markets. That was the year that middle aged and older adults became the adult majority for the first time in U.S.history.
SAM was not just about how to be more effective in older markets. It also presented my view of the economic impact of the then just emerging population explosion in older adults. Among other effects, I predicted the coming of what I called “The Great Real Estate Recession.”
The Great Real Estate Recession is here. It will likely be with us through the rest of this decade and well into the next. I predicted in SAM that the aging of society would plunge us into the deepest crisis in housing since the Great Depression of the 1930s. Worse, I said, unless lenders tightened up mortgage underwriting requirements the housing crisis would precipitate a massive and lengthy financial crisis. Specifically I wrote:
- Mortgage finance institutions should be particularly concerned about the Great Real Estate Recession loan-to-value ratios will fall, weakening the entire mortgage finance industry as loan defaults increase the housing finance industry will become even more troubled (due to unwise liberalization of mortgage approvals) and could plunge the entire U.S. economy into a massive, lengthy financial crisis.
Those words, written nearly 20 years ago, describe what is going on now in the housing and financial services industries. However, my predictions fell short in several regards: The Great Real Estate Recession arrived nearly 10 years later than I thought it would. Secondly, I underestimated the scope of the resulting financial crisis. I did not foresee the crisis spreading around the globe because mortgage–backed securities were neither as complex nor global as they now are.
Several unforeseen events delayed the onset of the Great Real Estate Depression, the first of which was the Internet. It spawned hundreds of billions of dollars in new business. It helped create the longest period of uninterrupted growth in modern U.S.history, and spurred the creation of private wealth on an unprecedented scale. The housing industry profited enormously from this as thousands of people bought multiple homes. Their primary residences were substantially larger than average-sized homes of the affluent in the past, leading to the coining of the term “McMansions.
Another event I did not anticipate was the unprecedented number of investors in newly built housing stock. At one point, it was estimated that as much as one-third of all new home sales were made to investors. This created a much inflated picture of housing demand. Distorting this picture even more, were millions of people buying homes beyond their means thanks to unprecedented liberalization of mortgage underwriting standards.
Lenders across the country developed loan products that required no down payment. Teachers, truck drivers, tradesmen and others who are not usually considered to be knowledgeable real estate investors took advantage of lenders’ no-money-down load packages to buy homes that they often sold within days or weeks of closing at substantial markups.
Many lenders also offered mortgages to financially marginal homebuyers that allowed them to simply add to their principle in any month they were unable to make a scheduled payment.
So, despite several
unanticipated events that delayed the arrival of the Great Real Estate
Recession, it is here now, and is developing pretty much as described in Serving the Ageless Market.
It is against the backdrop of an
anemic economy for some years to come that companies will be duking it out in
the marketplace. At no time since the Great Depression have marketers been so
challenged to perform their magic. This series will conclude with a litany of
actions that can improve marketing performance at a time when the marketing pie
is shrinking in many categories of which housing is but one.
NEXT: Why the aging of society has helped bring on the
Great Real Estate Recession
The housing slump comes at a terrible time, just when the deluge of oldest baby boomers are beginning to downsize and want to sell their homes to have the cash to invest and/or buy something smaller.
I was fortunate to sell my home just before the slump began but already, according to local prices, my new home has lost nearly ten percent of its value.
Not being an economist, I can't predict how this will affect retirement of the boomer generation, but I doubt it will be good.
Posted by: Ronni Bennett | November 27, 2007 at 06:22 AM
There are two issues here. Housing affordability is the one economists and policy makers are trying to address as foreclosures continue to rise. Perhaps the bigger issue is raised by Ronni who is one of millions of Boomers and matures who have outlived the usefulness of their current home and want to shift to another structure that is constructed according to universal design principles and fits their current and future lifestyle preferences. The recession short circuits this migration from family dwelling to developmental aging habitat. Perhaps, Boomers and matures will need to rethink how they can transform their current housing into a place where they can age successfully. If this is the case, it should be a boon for contractors, home equity lenders, and building supply vendors like Home Depot and Lowes.
Posted by: Stuart | November 27, 2007 at 09:35 AM
Thanks, Ronni and Stuart. You both make good points. Stuart, your point about boomers' need to rethink how they can transform their present housing is on target. The only problem for many, though, is their desire to lower home maintenance costs. E.g., many would like to halve their heating and cooling costs. But some might be able to generate off-setting income by taking in a roomer or two. In any event, the times do call for rethinking housing accommodations during the retirement years.
DBW
Posted by: David Wolfe | November 27, 2007 at 10:21 AM
I think one factor in the boomer housing market that's being overlooked is the potential of green energy, e.g., solar , to become more affordable and accessible, potentially allowing seniors to stay longer in the McMansions they love. I for one plan to stay as long as possible in my oversized "Lodge" even if it means taking in a renter. Much better than transitioning to a "developmental aging habitat" -- sounds more suitable for my parrots!
Posted by: Joan | December 03, 2007 at 07:38 PM
Joan, I concur. In fact, a whole new category in home improvements has opened up: retrofitting homes to make it possible for seniors to remain in their traditional homes. Because affordability is an issue for many, your thoughts about reducing energy costs are on target!
Thanks for your comment.
DBW
Posted by: David | December 05, 2007 at 01:43 PM
Lambert Klein has really woken up the baby bomreos with his book even though I am not a baby boomer myself, I am a middle-aged male that needed the reminders Lambert speaks of in his book. In today's hustle and bustle world, it is very easy to overlook some of the most rudimentary and basic needs for living healthy. Lambert does a really nice job of tying together all of the critical areas such as vitamins and supplements, stress management, and dealing with hormonal changes as we grow older. The really cool part of this book is the section on alternative treatments, which is the new trend in medicine. I am very impressed with the ease and simple method in which the information has been presented in the book. I would highly recommend and encourage anyone seeking to find simple ways to make big, healthy changes in their life, to buy this book. And for the price of this book, you cannot compare the benefits to the price of the many years this book could add to your life. Kudos and congratulations to Lambert for a truly phenomenal book!
Posted by: Ipan | April 26, 2012 at 01:48 AM
The best investment will be in the S P 500, but you need to wait for the big dip when the meatrks fall and retest the big drop they had in March 2009. That dip will happen because commercial real estate is still living in a fantasy. There are far to many stores and malls to support the amount of money Americans are now willing to spend and credit cards are dead. Buy the S P 500 through a mutual fund that will have that title or buy the stock SPY which is the S P 500. The baby boomers are not going to pull out their money because the market is the only chance they have.
Posted by: Sheri | April 28, 2012 at 01:12 AM