Warren Buffett's Berkshire Hathaway predicts major housing market shift soon

First-time homebuyers have struggled with the housing market over the last few years, as affordability worsened and the supply of available homes dwindled.

The majority of those shut out from the housing market have been younger buyers, preventing Gen Z and Millennials from reaching a key financial milestone.

However, Baby Boomers have faced a more predictable and buyer-friendly housing market — with the exception of the 2008 subprime mortgage crisis.

🏦 🏡 Don't miss the move: SIGN UP for TheStreet's FREE daily newsletter 🏦 🏡

Now that the majority of Baby Boomers are approaching retirement and considering selling their homes to relocate, experts note it could up-end the housing market.

Though high mortgage rates and stagnant housing activity have impacted older generations, younger generations have borne the brunt of the increasingly expensive housing market.

Berkshire Hathaway HomeServices predicts that retired homeowners looking to downsize will compete with first-time homebuyers for smaller and more affordable homes.

Rising home prices, sticky mortgage rates, and a lack of affordable housing options have diminished homebuyer demand in recent years. Now, Berkshire Hathaway Home Services anticipates buying a home will get even harder for younger buyers on a budget.

Image source: Shutterstock

Berkshire Hathaway HomeServices predicts it will be harder for first-time homeowners to buy a home

Affordability is the main barrier to homeownership for younger homebuyers, but many note that if mortgage rates dipped below 6%, it would improve conditions enough for them to buy a home.

Although housing inventory levels are improving, many sellers are still holding off on listing their home until mortgage rates drop further, keeping the market in a holding pattern.

“They [Baby Boomers] accumulated significant equity from staying in their homes and paying down their mortgages and benefiting from escalating home prices over the course of 13 to 16 years,” The Berkshire Hathaway HomeServices blog wrote. “Just in the last five years, nationwide home prices have risen 47%. Yet, many boomers who remain in their homes have little financial motive to sell in a higher interest rate environment.”

More on homebuying:

However, experts anticipate that when Baby Boomers finally decide to relocate for retirement and sell their homes en masse, Berkshire Hathaway HomeServices believes it will worsen the housing affordability crisis for younger generations.

“As Boomers sell their homes and purchase smaller homes with cash, they are inadvertently making it harder for first-time and lower-income homebuyers to compete.”

Millennials and Gen Z will need to compete for homes with senior Baby Boomers, Gen Xers approaching retirement, and even institutional investors like Blackstone, which owns upwards of 60,000 residential single-family homes in its portfolio.

“Along with institutional and foreign housing investors who intend to buy and hold or rent out the homes they purchase, Boomers are contributing to higher home prices by reducing inventories of smaller, newer, and/or more affordable inventory.”

Berkshire Hathaway HomeServices expects a surge in unoccupied homes left behind by Baby Boomers

As Baby Boomers age, they are expected to leave behind homes that many prospective buyers won't be able to afford. This could shake the already tenuous housing market, as demand among older and younger homebuyers shifts toward smaller and affordable homes.

Berkshire Hathaway HomeServices notes that as Baby Boomers enter their golden years, they will no longer be able to manage large, expensive homes.

“What boomers will leave behind as they vacate their homes, whether for alternative lifestyles such as assisted living, long-term care homes, and multigenerational living, or through loss of life, is a growing inventory of unoccupied homes and homes for sale,” the blog continued.

As affordability deteriorates and expensive home listings sit idle, housing experts worry that widespread surplus could implode market pricing.

“Between 13.1 and 14.6 million boomers will abandon homeownership from 2026-2036, raising housing industry fears that such a large inventory of homes could lead to price collapses.”