Boomers need out while Sydney joins in

Well it seems the last fortress of denial is starting to see some real estate trouble with the Daily Telegraph reporting recently on Sydney’s market.

Sydney’s great property divide is being turned on its head, with the wealthy Eastern Suburbs suffering a shock 15 per cent slump in property prices, while values in the city’s west continue to soar.

Property monitors and analysts are stunned by the sharp reversal in fortunes in traditional real estate hot spots, claiming the nine-month plunge has wiped billions from the collective wealth of the city’s richest homeowners.

And it could be just the start.

Property analyst Jason Anderson, of MacroPlan Australia, believes the Eastern Suburbs could face a further 5 per cent decline in values in the next quarter alone if sentiment failed to turn around and first-home buyers continue to sit on the sidelines.

Such an additional fall would take the market correction to beyond 20 per cent from the inflated peaks reached last year, erasing the majority of gains the Eastern Suburbs recorded in the mini property boom post the Global Financial Crisis.


All financial indicators point to a continued softening in the Sydney property market, following similar downward trends in Brisbane (down 6 per cent in a year) and Perth (down 4.1 per cent), while Melbourne has seen a 20 per cent fall in sale volumes.

The most prominent indicator is new housing finance which is now 30 per cent below levels reached in the first-home buyers frenzy of 2009. This reluctance to buy is also shown in the numbers of first-home buyers looking for property – only about 96,000, compared to 190,000 at auctions in late 2009.

Housing sales have also tumbled. Ray White Real Estate said the value of the houses it sold in March was 16 per cent down on March 2010 figures. Agencies also believe the number of houses on the market is at the highest level ever recorded in the city.

“There was some feeling at the end of last year that all we needed for 2011 was for no interest rate rises and prices should increase. That optimism has faded somewhat,” Mr Anderson said.

“Everyone seems to be a little bearish. I thought the return of the first-home buyers would have happened by now, but it now looks like they will wait till the December quarter. So the bottom is a little bit of a way off yet.”

Others maybe shocked to hear that Sydney is now showing signs of real estate weakness, but I am unsure why. For some reason property bulls seem to have got it in their heads that even if everyone else has left the market investors can keep it going by themselves. They seem to be of the belief that this is a choice that investors can make, and if they don’t sell then prices will not fall.

But that line of thinking has a big problem. For a large number of property investors those properties are their retirement fund. As the Unconventional Economist mentioned in a post back in February.

Despite representing only 25% of Australia’s population, the Baby Boomers collectively hold 45% of owner-occupied dwellings and 51% of other dwellings (i.e. investment properties and holiday homes). However, since the older Boomer cohort (55-64 year-olds) are relatively small (accounting for 11% of the population), they hold a smaller (20%) share of Australia’s housing assets. By contrast, the younger Boomers (45-54 year-olds) hold 26% of the housing assets, reflecting their larger (14%) share of the population.

But that first 11% have a problem. I will let explain what it is.

Rising living costs also are worrying employed people nearing retirement.

Big super fund First State Super reported last month that 70 per cent of its members approaching retirement are concerned about their future.

Perhaps because average superannuation payouts on retirement are woefully inadequate — $63,000 for women and $136,000 for men.

Millions of Australians have hardly any superannuation at all.

The National Centre for Social and Economic Modelling says half of all women between 45 and 59 have less than $8000.

Many super funds and financial advisers say $750,000 to $1 million is required to fund a modest or comfortable lifestyle in retirement.

The latest Westpac ASFA Retirement Standard Index says a couple looking for a comfortable retirement need $53,729 a year, while those seeking a modest lifestyle need $30,557 a year.

Financial counsellors have quick rules of thumb to work out what a retiree needs — multiply the annual income you want in retirement by 17 if retiring about age 55, multiply by 15 for a retirement age of 60, and by 13 if you are going to work until 65.

Many people approaching retirement are not making the extra contributions they need to ensure a healthy super balance.

Quite simply real estate (and in a smaller proportion equities) is the superannuation of 55+ baby boomers. The reason they own so many properties is because they own so little of anything else. For this cohort there is little choice to sell or not. If they want to have a decent retirement they need to unload their portfolio.

This starts now!

In my opinion the reason we are seeing increasing numbers of properties on the market is the beginning of this dynamic, and therefore if you are waiting for the number of houses on the market to fall you are going to be disappointed until at least 2021.

I never offer advice, but if I was 55, hoping to retire in the next decade and I owned property then I would seriously be considering the consequences of the decade of boomers ahead of me on my property portfolio’s value.

To everyone else….. well you can make up your own minds.

Latest posts by __ADAM__ (see all)


  1. Good post DE. As Leith has pointed out numerous times, the demographic headwinds facing global property markets are considerable. I’d be interested in whether you think Japan is a canary in the coal mine given it’s population is collectively older than other markets.

    For those that think boomers can survive on rental income, all you need to do is compare rental yields with term deposits. They have relied on capital growth as much as other investors and will be the first to exit as these gains begin to evaporate. In fact, longer holding periods may mean they can discount and still secure a nominal gain over the purchase price.

    • On Japan..

      In regards to the property market I would say that Japan is a canary for Australia, as is the US.

      In regards to the broader economy I would say that it is not.

      There are two significant differences between Japan and Australia. Immigration and commodities. I am hopeful that these two will get us collectively through a downturn in housing. Whether or not they will is the $3 trillion question, and something I muse over quite a bit.

      • A ponzi real estate scheme is still a ponzi scheme and that is the same in every country whether it happens in Japan, America, Ireland, England or Spain. Retirees, who due to the perfect timing of their birth, had a golden opportunity to get into the Australian Real Estate ponzi scheme early–whether they’re smart enough to get out in time is another matter. My parents in Canada tried to sell their home last year but decided to pull it off the market when only one offer came in well below their expectations. They will try again in a few weeks, but I wouldn’t be surprised if this time they get no offers. Fortunately, my parents see their house as a very nice place to live and will not need to sell to continue funding their retirement.

      • Delusional,
        (with respect), you’re delusional on immigration.

        “There are two significant differences between Japan and Australia. Immigration and commodities.”

        Australia has substantial resources per capita Japan few. Immigration reduces Australians’ one major strength.

        • Agreed. Australia pays its way in the world mostly by selling-off its fixed mineral endowment. More people means less resources per head and requires us to deplete our resources faster just to maintain our standard of living.

          But I think you might have missed DE’s point, which is that the housing situations in Australia currently and Japan in 1990 are not directly comparable due to our vastly different demographics and Australia’s significant natural resources.

  2. I think another key statistic would be to look at the segment that is 65+ as well.

    What proportion of property is owned by the 45-55, 56-65, and 65+ brackets?

    My grandparents are in their mid 70’s and still live in their own home, something very few people in there mid 70’s did a generation ago. Their whole neighbourhood and suburb is full of people 65+ as well (i.e. there are more walking frames down at the local shops then lattes).

    In the next decade – the 65+ bracket will die, and the 45-65 bracket will want to cash out of investment properties. It will really be a double whammy as far as supply on the market is concerned.

  3. What about reverse mortgages? Is it possible that retiring baby boomers could take out reverse mortgages on their properties and not actually sell?

    • Possible. I think it’s something like 75% of the wealth of those over 60 is held in home equity. Horrid thought, you’ve got the compound juice running on the equity release while the market is losing its value – well horrid thought for the kids.

    • The LVRs on this sort of facility are quite restrictive to begin with. Most banks will only lend in certain suburbs and to small maximum amounts, giving consideration to the likely number of years the applicant will survive (it looks really bad to have to kick oldies out of their homes because they no longer have any equity left) and this was in a market with capital growth.

      Imagine how tough it will be to access this sort of loan with prices steadily declining, increasing stock and absent buyers? Good luck! I suspect that this product will all but disappear from the menu of the smaller, more conservative banks in the near future.

    • Reverse mortgages should be kinda difficult (read “should be kinda impossible”) under the new NCCP legislation…

      I wonder if there are any mortgage brokers reading MacroBusiness who can confirm whether that is the case, in practice?

  4. I am still hoping we don’t have a major crash. A prolongued stagnation would be much better for my personal situation as well as the nations.

    Although, something can be said for getting it all out of the way quickly and I’d certainly like the opportunity to buy a home for my family. It’s the whole, high unemployment thing that worries me the most. I’m still quite inexperienced in my job, I’d like to think I’m good at it regardless. But if my current employer has issues it’s the younger guys who go first.

    Fingers crossed the economic tsunami ends up being a big tide.

    • Nah, if you’re inexperienced then you’re cheap in a near full employment labour market, so don’t stress. They’re far more likely to get rid of the guy who actually knows what he’s doing! That’s the way things have worked since the corporate downsizing game began in earnest in the 80s. The company sacks the more experienced and better qualified person, gives the junior a slight pay rise and a better title (one of those with “manager” in it), places unhealthy demands on your time and energy to step in to the breach and still pockets a substantial saving directed to the bottom line. It’s an old trick from the early days of the unsustainable profit improvement trend.

      But, and I agree, a slow and sustained decline or long-term stagnation would be in the best interests of most people rather than the alternative. Unfortunately these things have a habit of determining their own outcomes once the effect begins, and even government intervention becomes powerless to stop it.

      It should be a fun ride regardless!

      • I actually get paid on a salary + commission basis right now. So, I’d be more worried that business dries up and, not being experienced, my sales drop. Although I feel I am pretty good at my job (and have managers singing praises for now), I still have that insecurity that comes from being in my current role for less than a year.

        I’m worried if the economy tanks leads might dry up and my inexperience will kill me.

    • An avoidance of a crash will require large scale debasement of our currency and greater present and future income streams being reallocated to servicing debt.

      In other words government intervention and yet another burden placed on Gen X and Gen Y who are now required to service the needs of their children, not strain on the excesses of baby boomers.

      Once again you’re telling boomers that they will not suffer the consequences of their actions, that someone else will bail them out.

      I can’t see any value in that. This country can no longer afford to invest in its past, and the baby boomers are definentely not the future.

      • Interesting view, you really think it will require massive government intervention? I would have thought it would require a massive amount of faith in property as an investment, something Australia definitely has.

        Hell, I’m open to all and any views on this issue, so why not.

        • Last time around, property fell 12% in 8 months, before a multi-billion injection via the FHOG boost prevailed.

          It wasn’t a permanent lift, it just brought forward demand, now we are once again seeing the reversion to the proper price for housing.

          Everyone who has discussed their views on a housing bubble for 3-5 years now, has stated the consequences.

          * ‘A rush to the exits’
          * ‘Many in negative equity’
          * ‘Declining prices a trigger for an increase in unemployment’

          These conditions now look like they are here, and the only entity left with a sizeable enough line of credit in the government.

          Without it, then you’re left with ‘faith in property as an investment’.

          Faith? In what ?

          2.5% after tax yields?

          The growth in housing prices can not outstrip wages.

          A decade ago, outside of Sydney, it was 3.5 times.

          It is now 7 times.

          How far do you think this price disparity can go?

          Get to 15 times, then 5% interest is the average after-tax wage just to service the interest. leaving no money for any other expense.

          Then the realisation of now buying. property is incredibly leveraged for most people. Price adjustments are incredibly sensitive, and to have hundreds of thousands disappear in a price decline, then I think you can gauge the sentiment of some.

          People know what price declines can occur, they have happened all over the western world.

          Now I know, it’s ‘different here’, and that leaves the two compelling forces of debate.

          ‘Prices can fall, they have elsewhere, and the same conditions that caused them to fall are now priming our economy’


          ‘It’s different here, trust me. Ohh, and buy this property because my commission/capital gain is dependant on it’.

          I would suggest people are no longer easily swayed by the second argument.

          And as far as the ‘buy now or miss out forever’ meme. Do you know what sort of message that sends to 17 year olds?

          It’s their fault for not being born earlier? This primes an entire generation to look for opportunities to emmigrate when you do that.

      • Rusty,

        What exactly do you mean by:
        “Once again you’re telling boomers that they will not suffer the consequences of their actions, that someone else will bail them out.”
        Are you suggesting that only these mysterious “boomers” have contributed to the current ridiculous state of the Australian housing market?
        Have you ever been to property auctions and observed which age group gets carried away in bidding wars?
        Have you noticed which age group builds “the largest houses in the world”, complete with media room, two family rooms, powder room, 4-5 bedrooms (often with en-suite), granite benchtops, stainless steel european appliances, and 10hp ducted airconditioning (and black roof tiles, for crying out loud!)?
        Have you noticed which age group then proceeds to park upwards of four vehicles or more in the garage, in the driveway, and on the footpath?
        Have you noticed which age group features in most of the MSM feature articles, breathlessly telling us how they will be property millionaires before they are 40?
        Now, unlike you, I’m not the least bit interested in fostering aggravation between different generations, but if you think that one group of Australians, and only one, is primarily responsible for the current state of our housing market, then I respectfully suggest that get out and about a bit more.

        • Agreed George, intergenerational wars are a distraction. But it’s hard to argue with the view that the boomers have been the main beneficiary of Australia’s housing bubble and are the keenest to see it continue.

          • Agreed UE. The boomers have probably been significant beneficiaries of the housing bubble. I’m not sure that many of them had that as the end game when they bought properties to provide for their retirement. Remember, that during most of their working life there was no such thing as superannuation. Owning shares was something only rich people did. Investing in futures, commodities, forex, CFDs, Master Trusts, ETFs hadn’t been thought of. Day-trading over the internet didn’t exist. So the boomers went in for the one thing that was available to them (other than useless life assurance)to supplement whatever they might or might not save during their working life. That one thing was bricks and mortar. Up until the 1990s, everything was going pretty much to plan – hang on to the IP, retire, collect the rent, maybe even avoid going on the pension.
            But then came easy credit – were the boomers to blame for that? Could the boomers stem the flow of overseas money pouring into Australia looking for a profitable home? Could the boomers stop 20/30-somethings demanding that their bank manager give them 100+% LVRs? Did the boomers foresee that the little fibro joint they bought in the inner-west back in the 60s or 70s would have people throwing money at it in the 90s and 00s?
            My point is simply this – there are no innocents here – everybody has played the game – unfortunately the game hasn’t gone the way some would like (I totally agree with their concerns) – but now it’s time to find someone to blame (notice how no matter what happens in ones’ life these days, somebody else has to be to blame?)
            Here’s a fact: a house is only worth what someone is willing to pay for it – it was completely within Gen X/Ys capacity to simply say “Bullshit! I’m not paying that price” and keep their hands firmly in their pockets. Guess what would have happened to house prices if they had? Fortunately, it seems now that they have finally woken up – the buyer is the bloke in charge, not the seller. My advice to Gen X/Y – sit on your hands for another 6-12 months, do not visit a bank manager, stay away from real estate auctions, and ignore the crap from the MSM about real estate bottoming, get in now or never get in, etc. etc. And watch what happens to house prices. Simple – it’s called self-discipline.

        • “Are you suggesting that only these mysterious “boomers” have contributed to the current ridiculous state of the Australian housing market?”

          No, I’m suggesting however that while 24% of the population and owning 50% of investment properties, they are the major contributor however.


          “Have you ever been to property auctions and observed which age group gets carried away in bidding wars?”

          Older Gen X, followed by Boomers.

          “Have you noticed which age group builds “the largest houses in the world”,”

          Boomers when they upgrade, they will buy the most expensive residence they can, because they know its a CG-exempt asset to offload when they retire. Gen Y can’t even afford these $250k+ monstrosities after they’ve had to outlay 300k for a block of land.

          “Have you noticed which age group then proceeds to park upwards of four vehicles or more in the garage, in the driveway, and on the footpath?”

          Yes, again boomers who have a car for each adult, a 4WD dedicated to off-road travel or towing the caravan, and the vintage 1960’s MG/McLaren, while they trawl the internet for spare parts for their ‘project’.

          “Have you noticed which age group features in most of the MSM feature articles, breathlessly telling us how they will be property millionaires before they are 40?”

          Up until recently, I saw many more articles about how boomers have secured their retirement via property. The current meme of under 40’s is more a marketing ploy to attempt to draw in more naive buyers.

          “Now, unlike you, I’m not the least bit interested in fostering aggravation between different generations, but if you think that one group of Australians, and only one, is primarily responsible for the current state of our housing market, then I respectfully suggest that get out and about a bit more.”

          Well thanks for the suggestion, but I decline. The current financial, fiscal and macroeconomic situation has more than ever before implored the need to scrutinise the status quo and prevailing thinking.

          Your apparent adherence to the status quo will have us eternally think that a ‘rich and respected Harry Tribugoff’ has virtues of enterprise and hard work that we should respect to the point his decision making process is beyond reproach. His capitalistic genius is something we should aspire to, and never question.

          Well no, IMO he has been lucky and been favoured by irresponsible lending practices and misguided policy. It the absence of these two elements, he hasn’t displayed enterprise of sustainable wealth building.

          What we have, does not work. We have slavishly followed the false concept of trickle-down, we implement NAIRU which ensures a minority will always be marginalised and disadvantged in the belief in will control inflation.

          And lastly back to my statement which you maligned, my criticism of the baby boomers in relation to recent times and their impact on housing prices, which I will now repeat;

          “Once again you’re telling boomers that they will not suffer the consequences of their actions, that someone else will bail them out.”

          This is a statement that to prevent an imminent collapse of housing prices, and the level of wealth baby boomers have tied up in it, a burden will be placed on following generations.

          If policy can prevent it, then the baby boomers will not suffer the deserved price reversion of property. They will not bear the downside risk of their actions.

          I added once again because I ‘have got out more’ and have tracked various policy throughout their existence.

          I’m talking about things in Industrial Relations law such as the 1902 harvester ruling and Ben Chifley’s 1947 law of the 40 hour week, which have had the strictest reversal in recent times as Gen X males are now the most productive demograph in society.

          I’m talking about the relative real-amount of transfer payments away from the elderly to young families, introduced by Menzies in the early 60’s just as Boomers were children. It is quite obvious that a young family is impeded the most in regards to pursuing their financial goals because of the limited window of fertility.

          I’m talking about the lowest cost tertiary education when Boomers were in their late teens and 20’s, only for this to be revoked.

          And in relation to the Menzies point above. It is quite apt from a (unwritten) societal contract point of view, that the age group in most need of transfer payments are young couples, the ones most able to afford the provide for the transfer payment funding are those that are in age group the boomers are in now. When they are empty-nesters and at their highest earning capacity.

          Their parents were virtually all in a 60% marginal tax bracket to pay for the incredibly cheap childcare, free health care and free university of the Whitlam era. Now we have all these revoked in the last generation, with the highest marginal tax brackets scaled back, just as it is ‘their turn’.

          It’s not a contemporary generational-warfare issue, there is nothing special about being aged 55 in 2011, its just chronology.

          I can see one societal contract however being demanded shortly, and that will be the old age pension. Once again, they will not bear an appropriate cost of their behaviour.

          Once again, they will ensure they are the most favoured group in terms of government fiscal policy, at the expense of all other generations.

          But this time, enough is enough. I am questioning their place in society, and I have concluded, they are the past, they are barely the present, and they are definitely not the future.

          As I said, this country can no longer afford to invest in it’s past. If it means they live in 2 room weatherboard shacks and are on a lentil and rice diet in retirement, then so be it.

          The future is the children of my generation and I am no longer willing to bear the cost of a generation that has never paid its own way.

          • I no more adhere to the status quo than do you, and your comments regards Harry Triguboff simply demonstrate how confused your thinking process has become. The difference between us is that I do not find it necessary or justifiable to blame the perceived woes of an entire country on a single group of its citizens. Greed and stupidity are universal – and Gen X/Y are not the pure-as-the-driven-snow victims you seek to portray.
            As for the rest of your posting – it would make a wonderful manifesto for some extreme group or another, but you have so many demographic wires crossed I’m amazed you don’t have a fire on your hands.
            Many of the issues to which you have alluded have been forced upon this country by that wonderful mechanism we now call globablisation and international competitiveness. I can assure you that most boomers are just as stunned at the pace and direction of the change as you – perhaps more so.
            All the best with it though, Rusty, there are plenty of windmills out there.

    • Hi Matt,

      I’m with you. I’d like to see a slow fall, but I’m concerned it will turn into a rout. That’s why I’m sticking with my current employer simply because of it’s industry (public transport). Hardly the most exciting go get’em place. But its a good place to hide while I build my experience up. I have a young family so single income 1.5 kids is hardly the time to be taking a risk now. In later years, yes.


    • Better I think to stick your fingers down your throat and purge quickly. A prolonged recession like the one in Japan will be no fun for you or your children.

      Don’t assume that it is always the younger guys who go first. Older workers are more expensive and younger ones will make better work slaves as they will do everything and anything to keep food on the table for their young children. Older workers may not be so desperate if they have savings and a roof over their heads that has been paid for.

    • a long period of stagnation is worse than a large and suddden fall. Why? it socialises the losses ie those who made the big profits on the way up get to off load to indebted FHBs at still inflated prices (only slowly being deflated by inflation).

  5. Don’t forget that the baby boomers won’t be able to negative gear their properties after retirement. This gives them another substantial reason to sell.

  6. If I were retiring and owned an investment property I wouldn’t think about selling. Collecting rent would be a nice little income I would be more interested in. Are we saying people about to retire must sell as they have debt in these investments?

    • Well if they are negatively geared, which most are, then it won’t be adding to you retirement income.

      In fact it would be requiring outflows from the retirement income to service the shortfall.

    • Unless you’re counting on capital gains, wouldn’t the income from selling the IP and putting it in a bank account be higher and less risky?

    • If I were retiring and owned an investment property I would sell as quickly as possible.

      House prices this high will not likely be seen again by someone entering retirement. House prices in Japan are still falling nearly two decades after the housing bubble popped in that country.

      The hassle of collecting rent from tenants who may lose their jobs would not be my idea of fun. Maintenance costs would be another burden to bare as a landlord. Why not put your money in a fixed term deposit and enjoy the interest. With any luck interest rates may continue to climb.

      If I missed being a landlord I would wait a few years for house prices to crash and then buy again–assuming of course that I was going to live forever!

      • SubZero

        Thanks for both of the above links – informative and balanced. Their view of a gradual correction over time being the likely outcome (as opposed to a US style collapse) is to be preferred! All tempered by healthy employment and modest interest rates – still room for trouble!

      • Good link SubZero. i actually attended said presentation and was pleased to see someone vindicate much of the research and thoughts that I’ve been having (largely aided via excellent blogs such as this one.

        In fact, one attendee commented that he had sold an IP thinking that the property was around 20% overvalued and after the presentation thought 30% was more likely!

    • The graph of US and Australian UE rates on slide 34 is an interesting one. They seem to draw the concusion that low UE (unlike the USA) will underpin the market.

      I think they have the causality backwards. It was the bursting of the US bubble that drove their UE rate skyward, it wasn’t increasing UE that made the bubble collapse.

      The bubble can collapse under it’s own weight, we don’t need increasing UE to be the trigger, it may very well become the consequence, just as it has in the USA.

    • Good to see that the Institute of Actuaries of Australia could see through the misleading median house-price-to-income ratio(4.5) put forward by CBA and Rismark.
      I expect to see a blog post from CJ soon, calling them names.

      • LOL,

        ‘Actuaries, putting it mildly, are back-office bureaucrats with too much focus on algorithms, and not enough real-world experience’

          • I think Rusty was paraphrasing the comments expected from Dr Jhris Coye.
            But I can see the good doc is busy referring to himself in the third-person – “our biggest hawk vindicated”
            The delusions of grandeur must be slowly setting in.

    • Thanks subzero. Very interesting. The figures on p28 and p29 are crucial.
      I keep banging on about this like a broken record to anyone who will listen. Renting is a no-brainer in the current Aussie market. Sit back and relax and wait patiently. The rent vs buy arbitrage is so strongly stacked towards renting that there has to be a correction.

      Either rents must skyrocket to double digit increases for a decade or prices crash (or just grind down for a very long time). I’ve never seen anyone argue the first scenario is likely.

      People get too emotional about housing.

  7. There is another aspect to this situation. I’m currently looking at houses which are boomer owned. Most are 30+ yrs old and in need of major renovation. They are the standard 3/4 bed, 2 bath on 1/4 acre block. Who will buy them? 20% of modern families with children are single parent and will not be interested. In other families – my offspring included – both parents have a full time job and no time to manage a big block and do the renovations. I suspect many will end up as redevelopment sites for town houses.

  8. SubZero, did you notice the appostrophe’s around the comment?

    Or are aware of CJ’s tendencies to slag dissenting views as ‘back-office’ personnel?