A friend joked, no one correctly predicted where we’d be in 2020. Pandemics will apparently do that. But the pandemic pause is only the start. 2020 is changing our world in material and significant ways. The biggest change? American baby boomers’ loss of both dependence upon and confidence in cities. As a result, a boomer exodus looms.
Escape from New York
Escape from New York, John Carpenter’s escapist fantasy? Now looks all too much like reality. Only it’s not just New York we’re escaping but urban centers generally. The city luxuries are gone. The city risks heightened. Get out while you can is an emerging refrain.
This is the year that changes where and how retirees want to live. Like it or not.
Higher density and closer proximity equal higher risk of infection.
America’s coronavirus bout began on the West Coast. It was only a few scattered cases in Washington state and California. As a precaution, the US shutdown eastbound transpacific flights from China. But the virus raced around the world the other way. Airlines became the infection vector. The virus spread to major cosmopolitan and tourist-centered cities. First in the Mideast. Then Italy, France, and the UK. And the virus bridged the Atlantic. It was New York City that became the poster child for urban coronavirus risk.
New York works when it works because of the subway. Packing strangers, shoulder-to-shoulder into small metal containers for long rides? Long rides with a highly contagious virus? The subway and other forms of shared transportation mutated into coronavirus incubators. City leaders went almost overnight from don’t be afraid to begging for ventilators. The pre-pandemic urban energy lifeforce switched to a “don’t stand too close to me” death menace. Start looking towards the exits. A boomer exodus looms.
Washington’s nursing home disaster presaged challenges for senior living facilities. https://amp.flipboard.com/article/how-covid-19-will-end-big-box-senior-living/a-WCwCsthOREmF5YGhe2zaTQ%3Aa%3A53178103-a305dafc6e%2Fqz.com
And highlighted the role of advancing age in coronavirus risk of death. https://www.cnn.com/2020/03/08/politics/coronavirus-washington-nursing-home-life-care-center-kirkland-cnntv/index.html
The virus’s target is now obvious. Baby boomers in or planning retirement and the silent generation well into retirement. They disproportionately incur the worst outcomes.
We locked down hard. And any technology reticence that existed was overcome by the need to stay safe. But going forward cities look less healthy. The green grass of suburbia, exurbia, and even the open spaces of rural America beckon. The promised lands are healthier places for retirement.
And if you look at wealth distribution by age? Retirees have a lifetime to accumulate wealth. Retirees are on average wealthier than their children. No surprise. They’re leaving urban centers and taking their money with them.
At least the mobile wealth. Real estate net worth is less liquid, mobile, and more at risk. We’ll rebuild in the promised land.
Knowledge workers and creatives were immediately exiled to homes. And asked to stay productive. Most did. They rapidly switched to working from home. Videoconferencing and other digital tools substituted for office space. Zoom zoomed. Productivity remained high. Successful work from home begged many questions.
Employers asked, “Why are we wasting money on fancy downtown or suburban offices?”
Urban workers asked, “Why are we killing our family life with killer commutes? If I can work from anywhere, do I really want to work from a cramped urban apartment?” It was easier working in the company of our dogs than our possibly infected co-workers.
It may be a long while before those offices are full again. If ever. https://techcrunch.com/2020/04/08/commercial-real-estate-could-be-in-big-trouble-even-after-this-is-all-over/
Tech and finance giants committed to working from home for the foreseeable future. https://observer.com/2020/07/google-extends-work-from-home-2021-summer-tech-company-pandemic-response/
Office leases up for renewal? Many won’t be renewed. Those expensive urban apartments and condos? Look less attractive when reconfigured as isolation chambers.
The wealth of entertainment offerings that justify nightlife in the city? Sports, concerts, fine dining, retail shops, and galleries? All slammed shut. Many for good. The perks of city life disappeared overnight. Leaving only the burdens. And the burdens then multiplied.
Injustice, Riot, and Social Unrest
Most of us are conflict-averse. Cities work by the mutual consent of live-and-let-live. George Floyd’s unlawful death under color of law violated that pact.
The resulting riots, mob violence, and arson? Ripped that fabric of mutual dependence and trust even further.
The use of violence or threat of violence to achieve political ends begets more violence. And distrust.
The dysfunctions of big cities are on full display. Even good people, with good intentions, can produce bad results. Bad results abound. Minority small businesses destroyed by random mob violence. Loss of confidence in cities. Lost trust in city governments. And the destruction of any sense of urban personal security. Does police funding even matter if you can’t count on the police for protection when threatened?
Note, these conclusions are shared regardless of age, race, or wealth. But it’s the wealthy (often older) that have the economic choice to leave the conflict behind and move. Boomer exodus is a choice not open to all.
Small Business Disaster
Half of the economy falls under the domain of small business owners and the self-employed. This is main street, from restaurants to contractors, and gig workers.
Independent restaurants are the canary in the coal mine. They warn of the unfolding small business disaster. Temporary shutdowns are quickly mutating into permanent closures and job losses. And loss of wealth by owners. Yelp reveals that the COVID crisis closed more than half of the restaurants permanently. https://mashable.com/article/yelp-restaurants-temporary-permanent-closures/
Similar economic contagions are claiming retail storefront outlets and brands. Those businesses and their jobs won’t come back for the recovery. That can’t help but leave an economic mark. Consumer demand will be slow to recover. The resulting job losses and pandemic-response induced wealth-destruction? Mean less income and wealth to spend in future years.
Thomas Sowell reminds there are no solutions, only trade-offs. https://www.tsowell.com/ The social costs are high for our coronavirus responses. Sweden’s push through to herd immunity is costing lives. But is resulting in less social disruption and economic damage. Sweden’s choice is imperfect. But a rational choice. Especially, when you realize that all other choices are also imperfect. Trade-offs. https://www.news.com.au/world/coronavirus/global/coronavirus-sweden-how-anders-tegnells-unique-approach-to-battling-the-covid19-pandemic-backfired/news-story/3989556c1eb049024c53244e5d3b236a
Which is correct? Pick your trade-offs.
The virus is real. It’s a real threat. But America’s collective and disparate answers so far have their own consequences. Not all good.
The trade-offs are also real. And a real threat. When there are no good, pain-free choices? It may be a mistake to think there’s one right choice for all people. Imposing a single choice from above is not cost-free. When big government screws up? It screws up big. Think of the Center for Disease Control’s (CDC’s) initial testing fiasco. Or New York State’s transfer of COVID patients to nursing homes. Or mass political assemblies. Well-intended. But still screw-ups.
Maybe, persuasion is preferable to coercion. People accept the decisions they make for themselves better than imposed decisions. Even when there are bad outcomes. Or maybe, especially when there are bad outcomes.
And people generate alternatives even when coerced. They flee down the open path. One voluntary solution is the Boomer exodus from urban centers. I can always move becomes an answer.
Robert Schiller is the Nobel-winning economist behind the Case-Shiller National Home Price Index. Schiller predicts falling urban home prices. And a flight to the suburbs and beyond. A boomer exodus and more. At least in the short-term. https://timandjulieharris.com/2020/07/24/urban-exodus-lower-prices.html
Jumbo Mortgage, Jumbo Risk
Mortgages above $510,000 play by a different set of rules than average homes. These so-called jumbo mortgages can’t be resold on the secondary market. And so end up staying on the books of the banks that make the loans.
Guess who owns many of these homes. Yep, the small business owners and self-employed professionals devasted by the COVID shutdowns. And the cash flow disruption on their livelihood? It’s showing up in missed jumbo loan payments and defaults.
Banks are responding by tightening the standards to get a jumbo mortgage loan. Cash flow buyers? Forget it. It will now take real wealth.
Basically, the new jumbo mortgage underwriting standards? You can get a loan if you don’t need a loan.
What happens to all those expensive urban condos and suburban McMansions? The market price can’t stay the same. The number of willing buyers is falling. And the number of able buyers amongst the willing is a fraction of the total.
What’s a property worth? What a willing and able buyer says it is. Any home that requires a jumbo mortgage to buy? Is now worth less. A lot less. There are fewer willing and able buyers out there. Especially if the jumbo is for urban property. https://www.marketwatch.com/story/the-feared-jumbo-mortgage-debacle-is-here-thanks-to-the-coronavirus-and-ready-to-pound-the-housing-market-2020-07-22
Even before COVID? This was already a demographic and psychographic market issue for McMansions. See our prior article. https://agingwithfreedom.com/2019/07/11/my-house-is-too-big-2/
Now it’s worse. Much worse.
Wave of Rising Taxes
City and state budgets are hard hit by the COVID response economic contraction. Both sales tax and income tax revenue are down. By 20% or more.
Many jurisdictions are already raising taxes to fill the budget gap.
Cities and states have limited borrowing capacity. Unlike the Federal government, they’re not supposed to run deficit budgets. Cutting the budget to match lower tax revenue is a difficult choice. Issuing bonds depends upon willing buyers’ confidence. Faith in the borrower’s future prosperity. https://www.foxnews.com/politics/local-governments-weigh-major-tax-hikes-to-plug-coronavirus-induced-shortfalls
Rising taxes loom, especially in America’s cities. But taxpayers don’t have to stay to pay the taxes. A boomer exodus is their answer to self-preservation.
Involuntary retirement starts now
Finally, those nearing retirement now understand the sequence of return risk. It’s here. It’s now. And requires adjusting expenses. To correct for lost future income. The coronavirus recession forced boomers into retirement. Not by choice but necessity. https://agingwithfreedom.com/2020/04/18/boomers-involuntary-retirement-starts-now/
Staying in the expensive city centers is now less financially viable. Stretching retirement dollars requires the GeoArbitrage of retirement locations with less expensive cost-of-living. https://agingwithfreedom.com/2018/01/17/geoarbitrage-for-retirement-wealth-2/
A Boomer Exodus from the Urban Goshen
With pandemic to the right and social violence and unrest on the left and chased by rising taxes? Retirees flee the urban Goshen. It’s a boomer exodus.