Where demographic shifts could impact home prices, supply 

Many economists believe the path to improving housing affordability starts with increasing supply — so how do we get there?

As federal and local governments look for ways to spark construction of affordable homes, Bright MLS Chief Economist Lisa Sturtevant suggests that demographic shifts could end up doing some of the heavy lifting. In research recently posted on her Housing Economics Substack, Sturtevant concluded that the often-discussed "Silver Tsunami" may offer a partial solution in some areas.

The "tsunami" refers to the anticipated wave of older baby boomers transitioning out of their paid-off homes. With many seniors still aging in place, the market hasn't seen the full force of that transition, but it's expected to build in the next 5 to 10 years. 

If and when the tsunami hits, will it unlock enough housing supply to make a difference? Like many answers to big questions in real estate, it depends on the market. 

Scattered tsunamis, but no 'silver bullet'

Sturtevant focused on the share of unmortgaged homes across the U.S. owned by people aged 70 and older, with the expectation that those will be the homes most likely to go up for sale in the near future.

Perhaps not surprisingly, the mortgage-free, 70+ segment is not evenly distributed. Metros in the Sun Belt and the West, particularly those with fast-growing tech industries and migration hubs, have the lowest levels of tsunami potential, Sturtevant found.

The highest shares of homes owned by seniors with no mortgage are generally in affordable metros in the Midwest and Rust Belt regions, led by Pittsburgh (nearly 20%), Buffalo (17.8%), Cleveland (16.9%) and Detroit (15.2%). 

A handful of less affordable coastal markets also have a large share of homes matching Sturtevant's tsunami criteria, including Miami (19%), Tampa (18.6%) and New York City (16.8%) — all metros with high rates of senior homeownership.

In some of those markets, "there could be a notable impact on home prices" as more seniors sell, Sturtevant said in an email, but overall she expects the effects to be modest. "In general, it's likely that the new inventory will instead ease price growth, helping incomes to keep up with home prices," she said.

That assessment aligns with an April report from the National Association of Home Builders, which also concluded that the Silver Tsunami will be unevenly distributed but suggested that the impact on retirement-oriented coastal communities might be muted for younger homebuyers because those areas will continue to attract retirees.

"This demographic turnover will almost certainly add to housing supply. But it won't be a silver bullet for affordability. In many markets, new construction and zoning reform will still play a far larger role in determining whether housing becomes more accessible," the report stated.

What if boomers don't actually sell?   

If members of the boomer generation choose not to sell but instead wait to pass along their homes to their adult children, that could  exacerbate the inequality in a housing market currently driven by higher-income and repeat buyers, Sturtevant noted.

"But I don't think gifting/inheriting a home will have much of an impact on the flow of new inventory into the market in the aggregate," Sturtevant said. "The new inventory will be released slowly. And some kids aren't going to want these homes — they are in the wrong place, or have deferred maintenance."

The maintenance component could be significant, according to the NAHB report. In Pittsburgh, for example, about a quarter of the homes owned by those 65 and older were built before 1980.

"Thus, these homes are unlikely to be direct substitutes for new construction," wrote Catherin Koh, an economist at the NAHB and author of the April report. "Many may require significant renovations, and in some cases, redevelopment," Koh added.