  As baby boomers have begun to downsize and retire, their preferences now
overlap with millennials' predilection for urban amenities and smaller living
spaces. This confluence in tastes between the two largest age segments of the
U.S. population has meaningfully changed the evolution of home prices in the
United States. Utilizing a Bartik shift-share instrument for demography-driven
demand shocks, we show that from 2000 to 2018 (i) the price growth of four- and
five-bedroom houses has lagged the prices of one- and two-bedroom homes, (ii)
within local labor markets, the relative home prices in baby boomer-rich zip
codes have declined compared with millennial-rich neighborhoods, and (iii) the
zip codes with the largest relative share of smaller homes have grown fastest.
These patterns have become more pronounced during the latest economic cycle. We
show that the effects are concentrated in areas where housing supply is most
inelastic. If this pattern in the housing market persists or expands, the
approximately 16.5 trillion in real estate wealth held by households headed by
those aged 55 or older will be significantly affected. We find little evidence
that these upcoming changes have been incorporated into current prices.
