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Second and Urban Homes Not a Big Lure for Baby Boomers
Although they may be healthier, wealthier and better educated than previous generations, aging baby boomers are no more likely to purchase second homes or move from the suburbs to an urban area than the retirement-age households that have preceded them, according to a recent study from the Research Institute for Housing America in conjunction with Radian and the Mortgage Bankers Association.
Better news for those who have been eyeing these markets is that both segments will receive a boost based upon the sheer numbers of baby boomers who will be entering retirement age.
Based on data from the Health and Retirement Study, which has been surveying older Americans since 1992 and included early baby boomers born between 1948 and 1953 in its latest study conducted in 2004, the report, “Housing Trends Among Baby Boomers,” concludes that suburban empty-nesters relocating to the city have all the makings of “a small market” and “it would seem that substantial growth in the urban homeownership rate by older households due to migration from the suburbs is unlikely.”
“Also, if past experience is any guide,” the report says, “any increase in the second-home ownership rate likely will be modest.”
The future increase in the size of those two markets and their associated mortgage markets, says Gary Engelhardt, an associate economics professor at the Center for Policy Research at Syracuse University, “will be driven by increasing numbers of older households as the population ages.”
He cites projections from the Census Bureau that the share of the population that is 45 or older will rise from almost 35% in 2000 to 42% by 2050, primarily because of the baby boomers. Individuals who are 45 to 64 years-old are considered the prime market for second and urban retirement homes among older households, and they comprised 22% of the population in 2000.
“Nationally, as older households comprise a greater population share, the number of second homes is forecast to rise to 7.5 million by the end of the decade, about 900,000 more second homes than in 2004,” writes Engelhardt. “Steady growth will continue until 2020, at which point the number of such homes is forecast to be just over 9 million. After 2020, the growth in the share of the population in the prime second-home owning years begins to slow, and, consequently, the number of second homes begins to level off.”
Adding in the expectation that the homeownership rate in the general population will continue to increase over the next 10 years, projections by the chief economists for organizations in the Homeownership Alliance — which include NAHB, the National Association of Realtors®, the Independent Community Bankers of America, Fannie Mae and Freddie Mac — future second home growth is somewhat stronger, Engelhardt’s report points out.
“Specifically, the national number of second homes is forecast to rise to 7.7 million by 2010, about 1.1 million more second homes than in 2004, and to 8.9 million by 2015. Overall, in the next 10 years, the number of second homes is forecast to grow by 2 million homes according to these projections.”
Engelhardt also says that the demand for second homes may rely upon the viability of Social Security, Medicare and traditional employer-provided pension systems, as well as baby boomers being adequately prepared for retirement. The outlook here is not entirely clear and the outcome could hold unforeseen consequences, he warns.
Among the findings of the study on the outlook for the ownership of second homes:
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Of the more than 43 million American households comprised of individuals aged 50 and older who owned their main residence in 2004, 6.6 million, or 15%, also owned a second home.
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Most second-home owners either inherited their homes or purchased them with cash. Second-home mortgage originations comprised only about 4% of overall mortgage market originations.
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There are strong regional patterns of demand for second homes, and second-home mortgage activity is heavily geographically concentrated. Statistics from the Health and Retirement Study for 2004 show that overall, 17.1% of older home owners with a second home had a mortgage on that property. Homes located in the South Atlantic Census division — Delaware, the District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia — were the most likely to be mortgaged (23.8%), followed by those in the Pacific region (20.9%), which includes Alaska, California, Hawaii, Oregon and Washington.
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The typical second home is held for about 15 years, but turnover is high: 45% of older home owners with second homes disposed of them within a six-year window. A change in income of $10,000 between 1998 and 2004 increased the likelihood that an elderly household would sell a second home by only 1.5%, the survey showed. However, a change in marital status raised the likelihood of a sale by 39% and a decline in health from good to poor increased sales by 17%.
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Most second-home owners make limited use of their homes: one-half spend two weeks or less and two-thirds spend four weeks or less annually in the home. Also, only 12% of owners intend to sell their main home and eventually occupy their second home.
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Second homes are a small portion of the typical asset portfolio of an older household and are not important drivers of investment decisions.
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Despite anecdotal evidence, the homeownership rate for second homes among 50 to 60 year olds has remained flat over the 12-year period from 1992 to 2004. Early baby boomers in the 2004 survey were no more likely to own second homes than older cohorts of home owners.
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The market for mortgages on second homes for older households is only 6.3% of the size of the market for mortgages on primary residences. In the aggregate, there is only $126 billion in outstanding mortgage debt on second homes for older households.
On suburban-urban migration, the report finds:
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At the national level, empty-nest retirement-age suburban home owners are not flocking to urban areas in great numbers. Based on experiences in the last decade, in a given five-year period, only 2% of all the home owners in this group can be expected to move to an urban area.
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Suburban empty-nesters are just as likely to move to a non-metro area as they are to an urban area.
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The suburban-to-urban flow of home owners represents just 5% of the stock of all retirement-age empty-nest home owners located in central cities. When the flow of empty-nesters from the cities to the suburbs is taken into account, the net migration from the suburbs to urban areas is a negative 7.2%. “Any return of empty-nesters to the urban core is not enough to stem the tide of urban-suburban flight,” the report concludes.
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Over all metro areas, 76% of empty-nest suburbanites who moved to urban areas were white, 60% were married, 25% were divorced, just over 40% had college degrees and just over 40% were younger than 55. About half of these movers had incomes of $40,000 or less, and three-quarters had incomes of $70,000 or less.
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“Empty-nester suburbanites moving back to the urban core in the 10 largest metropolitan areas were more likely to be non-white, more highly educated and to have incomes greater than $70,000, respectively, than movers in all other metropolitan areas,” the study finds.
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