Should we also worry about a "shadow supply" of housing being held by middle-aged boomers and older seniors?
After all, unless there's a medical issue or financial emergency involved, most boomers and seniors don't have to move. Many bought decades ago when prices were much lower, and have low-or-no mortgages, so they've built up substantial equity. Rather than risk that nest egg, is it likely that these would-be sellers—who represent a huge segment of homeowners-- will wait until the market
improves before listing their homes? And if they do, will this added supply depress home prices?
Fortunately Christopher Herbert, director of research at The Joint Center of Harvard University, thinks that's unlikely, largely because the current housing market is so tempting for buyers. "While they may not be able to get as much for their homes as they may have thought possible a few years ago, they also have the opportunity to buy homes at low prices."
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Nevertheless, if you're in one of these age groups and you do decide to sell your home now, remember that when you move down to a cheaper house, you lose some of your purchasing power, even if the percentage lost on both houses is the same. That is, if you knock off 10% from a home selling for $900,000, you're giving up $90,000. If you then buy a home that's discounted 10% from $400,000, you only gain $40,000. So there may be a benefit in waiting to sell, assuming you expect the housing market to start to recover in a year or two (many economists do).
Otherwise, you may want to look into other options for tapping into your home's equity, such as a reverse equity mortgage, a cash-out refinance or a charitable home remainder annuity. But be forewarned: among other potential drawbacks, these all will affect what you are able to leave your heirs.
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