Saratoga News

Homes

Oh, baby, boomers are finding security in real estate

Most own homes, and many own multiple properties

By Jean Newton

Baby boomers have a higher rate of home ownership than the national average, and one out of four owns more than one property, according to a new study of the largest generation in U.S. history, commissioned by the National Association of Realtors.

The comprehensive study of nearly 2,000 Americans born between 1946 and 1964, conducted by Harris Interactive, also shows boomers are optimistic about the future, but many are not adequately prepared for retirement.

"As a group, boomers are in their peak earning years and continue to wield great influence in the U.S. economy, but they are not homogeneous--there are significant variances in needs, behavior, attitudes and resources," said David Lereah, chief economist for the National Association of Realtors. "On one hand is an almost insatiable desire for real estate, with some owning multiple properties, and on the other, many have not adequately planned for retirement. What should not be overlooked are the discretionary spending interests of this generation, and their appreciation of housing as a great investment."

Nearly eight in 10 boomers own their own homes and almost nine out of 10 have owned at some point in their lives; 96 percent believe owning a home is a good financial investment. According to the U.S. Census Bureau, the overall rate of home ownership is 69 percent.

One-quarter of respondents own one or more other kinds of real estate in addition to a primary residence: 13 percent own land, 8 percent own rental property, 7 percent a vacation home or seasonally occupied property, 2 percent commercial real estate and 3 percent some other kind of real estate.

In addition to a higher rate of homeownership, baby boomers are proportionately more active in the second-home market, owning 57 percent of all vacation/seasonal homes and 58 percent of rental property.

For the segment of boomers who own rental investment property, 34 percent own multiple properties: 14 percent own two rentals, 5 percent own three and a small number own four properties; however, 14 percent own five or more rental units.

Of the portion of boomers who own vacation homes or seasonally occupied property, 13 percent said they own two or more vacation or seasonal homes.

Four out of 10 respondents who own a vacation home or seasonal property intend to eventually make that property a primary residence. Historically, other survey data show only one in five vacation-home buyers had such intentions when they first purchased the property.

Lereah said this has emerged as an investment strategy. "Some boomers will take advantage of generous capital gains exclusions from their taxes when they sell their primary residence, and then place themselves in the position of being able to convert a vacation home into their new primary residence, which would later become eligible for the same tax treatment," Lereah said.

"Then, if their needs change in the future, they'll be able to take the capital gains tax break after they have lived in that home as their primary residence for two out the five previous years. It becomes a great way to build and protect a nest egg," he added.

For the portion of respondents who own land, the median holding was 5 acres. Half of those with commercial property had an ownership interest in only one property, and 29 percent have two holdings.

Thomas M. Stevens, National Association of Realtors president, said the survey shows one-quarter of all boomers are not satisfied with their present homes. "That means a good portion of baby boomers may be considering a move, so it's important for the industry to understand their preferences and needs," he said.

Ten percent of all boomers said they are likely to buy additional real estate in the next 12 months; two-thirds of those respondents said they were considering a primary residence but 26 percent were interested in land, 19 percent rental property, 15 percent a vacation or seasonal home and 14 commercial property.

Eight out of 10 boomers used a real estate agent the last time they sold a home. The things they value most in a real estate agent when they buy a home are representation of interests and coordinating with other parties in the process; explaining all contracts, forms and agreements; and management of the closing process from start to finish.

In selling a home, they also want agents to establish the right asking price, show the home and negotiate all offers received on their behalf.

"This tells us the Internet is great for information, but baby boomers want real estate agents to provide services, whether they're buying or selling," Stevens said.

Typical boomers have lived in their present home for a median of nine years, and plan to stay there for another five years. Two-thirds think it's important to pay off a mortgage quickly, but at the same time 58 percent are comfortable in purchasing with a small down payment.

In deciding whether to buy a primary residence in the future, nearly half of the respondents who were considering a purchase said having sufficient wealth or favorable mortgage financing were factors.

In terms of their current financial condition, 43 percent say they are financially comfortable, but 37 percent say they have just enough to make ends meet. Only 4 percent said they were well off, and 17 percent said they are having financial difficulty. "That clouds the retirement options for many baby boomers," Stevens said.

Nearly two-thirds say it costs too much today to truly retire and never work again, and four out of 10 expect they will pay for at least some college expenses for children or grandchildren; 38 percent said current financial needs mean they give little attention to financial planning for retirement.

"Many baby boomers are simply too busy to give much thought to planning for retirement, but they really need to develop strategies now," Stevens said. "Many just see themselves 'going' for as long as they can."

Three out of five say their idea of the perfect location to retire is in a rural area or small town, with only 12 percent saying an urban or city setting, and nearly half would consider living in an age-restricted community; 38 percent want to be close to family.

If money were no object, access to quality health care is important to more boomers than being on a golf course (38 percent vs. 4 percent). Ideally, they would like to live in a rural area with access to quality health care.