Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

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Wednesday, 15 June 2016

Market myth #3: World ends when Baby Booomers retire

Market myths

Property market commentary has become infused with a tsunami of theories as to why the world is ending. 

Some represent credible threats, of course.

Others represent no such hazard, yet have been espoused so frequently they are increasingly being treated as common knowledge. 

When "everyone knows" something it's often a good time to consider whether "everyone" might just be wrong.

I'm going to look at a number of common myths in the next few weeks, and today it's...

World to end as Baby Boomers retire!

This theory has been around for at least a decade now, but it's not really had a jot of impact on the property markets to date, at least at the macro level.

The basic thesis is that a massive baby boom in the period following World War II caused a demographic surge which will wreck the economy and our housing markets when the Baby Boomers retire and rush to sell their homes.

Thing is, in part due to our migration policy whereby international students and skilled migrants under the age of 30 are looked upon favourably, Australia doesn't really have a top-heavy population at all.

In fact there are more than 1 million more folk in their twenties than there are those in their sixties.

Incidentally, these demographic waves also help in part to explain in part the so-termed "first homebuyer retreat", whereby it is argued that younger generations are no longer buying housing.

Generally, they are still buying housing, but later in life, while relative to the size of the market there just aren't that many heads in the key "thirty-somethings" age bracket right now (refer to the lull in the chart above).

However, from around 2021 until 2027 there will be a huge surge of potential new entrants into the market as this age cohort suddenly swells (broadly from 31 to 38 years of age in my estimation - for although we like to think of ourselves as individuals, people tend to do fairly predictable things at predictable times in their lives).

In 2021 number of potential first homebuyers reaches a critical mass which might be considered compelling, with the number of 31 to 38 year olds in particular mushrooming to a total of more than 3.1 million (from around only 2.6 million in 2014).

In the period through to 2027, that number is projected to have expanded further still to more than 3.3 million, before steadying. 

As this effective "spending wave" passes through 2021, therefore, the demographic factors for Australian housing market growth look to be particularly favourable from that year until around 2027 inclusive.

Furthermore, a higher than historically usual share of young people are entering the housing market as investors at the present time, potentially a smart first step on the ladder which will help them to trade up to buying a first home at a later date.

Aging in place...wealthily

Despite gloomy predictions of a glut of homes being thrust onto the market by retiring Boomers, this hasn't really happened, with many opting to "age in place".

The material transaction costs of selling and buying property can act as a discouragement to downsizing.

If anything, Baby Boomers are often adding to demand for housing by buying more properties as investors, and after all, they all still need to live somewhere.

One of the key demographic changes over recent decades has been that those who live to the traditional retirement date might easily live for two or three decades in retirement, so selling everything up at the age of 65 and stockpiling cash may not be that attractive or smart an option.

Indeed, many may now opt to continue working well beyond the traditional retirement date. 

Of course, Baby Boomers also have much of their wealth tied up in their businesses and corporations, and they may elect to sell these, paradoxically freeing up even more capital to invest in property.

People also forget that real estate markets are more global today, with foreign capital playing a considerably more significant role, particularly in the most populous capital cities.

Perhaps most significantly of all, when Baby Boomers retire their wealth doesn't magically vanish into a puff of smoke, it's still right there to be re-invested in stock markets, housing,and other assets.

Even when the Boomers do finally turn into dust, unlike some other developed countries Australia does not have punitive inheritance taxes, and the accumulated wealth will be passed on to younger generations.

Long run

Over the long run, Australia's population is projected to expand very strongly across all age cohorts, and so demand for housing in the popular areas of capital cities will continue to increase, regardless of the extent of the impact of Baby Boomer retirement.

Demand for capital city property is projected to approximately double over the long run, comfortably outweighing the impact of Baby Boomer retirement.