A baby-boomer bubble is forecast

WASHINGTON -- The common perception among economists is that the current housing mess will be a relatively short-term affair that should see a return to normalcy within the next few years.

But, according to a new study by two USC researchers, problems of greater proportion lie just ahead. They call it the "generational housing bubble" and maintain that it will be fueled by the same baby boomers who have been bidding up prices since 1970 as they moved up the housing ladder.

Now, 78 million boomers are about to enter their twilight years when homeowners tend to become sellers rather than buyers. And as a result, the USC duo expects there will be "many more homes available for sale than there are buyers for them."

As the elderly become more numerous than the young, and shift into seller mode, the researchers postulate, the market imbalance could come quickly around 2011, causing housing prices to fall.

Only time will tell whether the projections by Dowell Myers, a professor of urban planning and demography in USC's School of Policy, Planning and Development, and Sungho Ryu, a doctoral candidate at the school and an associate planner with the Southern California Assn. of Governments, will come to pass.

After all, not all seniors retire or sell their homes and move to smaller places. Many prefer to age in place and live in their own homes. But eventually, as they die off, most of their homes will come on the market.

Myers and Ryu's foreboding prophecies bring to mind a 1989 study by a pair of Harvard economists, who predicted a 47% decline in housing prices during the 1990s because boomers would stop buying as they aged. Housing-industry economists lambasted that forecast as pure poppycock, and it eventually went up in smoke.

The USC researchers don't expect the generational correction to begin until 2011 or so. That's just about the time the most pessimistic prognosticators suggest the U.S. market will return to normal after five years or so on the rocks.

But it's also when the first wave of boomers reaches age 65, the traditional dividing point between seniors and working adults. And once that tipping point is reached, Myers and Ryu say, they will put more houses up for sale than the market will be able to absorb.