The Greatest Real Estate Generation
Compiled research statistics on the 'Boomer' Generation.
Ventura Marketing 6.2007
Baby boomers have been called lots of things during the past 50 years, but new research from Harris Interactive and the National Association of Realtors suggests that another label may be appropriate: The greatest real estate generation.
Like no previous demographic group, the 78 million Americans born between 1946 and 1964 have a seemingly insatiable appetite for real estate. The study, based on a statistically representative sample of 1,969 boomers polled early this spring, was released last week by NAR (National Association of Realtors).
Here's just a sampling of the findings:
Boomers have a passion for property — nearly eight in 10 own their own homes, and among higher income boomers the homeownership rate exceeds 90 percent. Boomers account for just 38 percent of all households, but they own more than half of all second homes.
One out of four boomers owns at least one piece of commercial real estate, land, rental property or a vacation home. One third of all boomers who own rental real estate own more than one unit. Among those who own commercial property, 29 percent own multiple investment parcels.
Nearly one of every seven baby boomers owns undeveloped land, with a median holding of five acres. Forty-four percent of those who own land report their holdings range from 11 to 100 acres or higher.
Boomers' high rate of real estate ownership has made many of them wealthy — or at least financially comfortable. Their median household net worth is $149,500 — and $100,000 of that is attributable to home equity. But 39 percent of boomers have net worths ranging from $250,000 to $5 million or more.
Thirty-five percent report primary home equities — the value of their principal residence minus mortgage debt — of $150,000 to $1 million or more. Homeowners on the west coast and the northeastern states generally have higher net worths than those in the south or midwest — primarily because home equities tend to be larger in higher-cost real estate markets.
Thirty-six percent of boomers in the western states own homes worth $500,000 to $1 million or more. Fifteen percent of boomers in the northeast own homes valued at more than $500,000, while just 3 percent in the south and 1 percent in the midwest are in that category.
The value of primary homes looms large among boomers' estimates of their personal wealth: Thirty-seven percent of them say their house represents at least 51 percent of their total financial worth. Among younger boomers — those age 42 to 49 — primary homes account for 51 to 100 percent of net worth for 38 percent of them.
Even with all the real estate they already control, boomers plan to keep buying more of it. Among those with household incomes of $100,000 and up, 37 percent say it is likely or extremely likely that they will purchase real estate within the next 12 months.
What do they expect to buy? Two thirds say they're going to purchase a new primary residence. Another 26 percent plan to acquire land, 19 percent rental property, 15 percent vacation or seasonal property and 14 percent commercial real estate.
Retirement?
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.
Nearly two-thirds say it costs too much today to truly retire and never work again, and four out of ten 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. They see themselves 'going' for as long as they can. Only 14 percent expect to receive a sizeable inheritance that will be a critical help during retirement. Half of all boomers believe it is important to diversify savings for retirement into different types of investments.
Multiple property owners
The demographic group also owns 57 percent of all vacation/seasonal homes and 58 percent of rental properties.
Among those 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. Among those who own vacation homes or seasonally occupied property, 13 percent said they own two or more vacation or seasonal homes, according to NAR.
Heavily tied to real estate
Affluent and retirement market consulting firm, Chicago-based Spectrem Group says some boomers, the so-called "mass affluent group" — those with investable assets between $100,000 and $1 million — typically have real estate, at 37 percent, as their largest asset class.
With 23 percent in their principal residence and 14 percent in investment properties they are at greater risk than those who can better afford the risk by virtue of their income and investment diversification. The mass affluent have a 76 percent greater exposure to real estate than millionaires (those with investable assets of $1 million or more), who put only 21 percent of their investment stake in real estate — 13 percent in their principal residence and 8 percent in investment real estate, Spectrem reported.
"Mass affluent investors have heavily tied their financial futures to the real estate market, which has been so hot for so long that many believe it has virtually no place to go but down. If the real estate market begins to crack, it is the mass affluent who will likely feel the effects both faster and with greater force. The fact that these assets often carry outstanding mortgages increases the risk further still," said Catherine S. McBreen, Spectrem's managing director.
Phoenix Marking International recently reported that affluent households — in this case, those with $250,000 to less than $1 million in invested assets — that are planning to increase their investments, are plowing their assets into retirement accounts, deposit accounts, mutual funds and stocks.
Market location risk
First American Real Estate Solutions' recent report "The Real Estate Cycle in 2006: Evaluating Market Position, Identifying Turning Points and Constructing Scenarios," documents, in general, how various housing markets might play out in the next few years.
Author, Christopher Cagan, director of research and analytics at First American says "cyclical" markets, regions like Southern California (especially Los Angeles and San Diego), the San Francisco Bay Area, including Silicon Valley, Florida (Miami, West Palm Beach, Boca Raton), Honolulu and New York City, follow a business-cycle pattern with a wave-like motion over 10- to 15-year periods. Prices can fluctuate by large percentages — 20 to 40 percent — above and below long-term growth rates in these markets, which have been the nation's hottest in the recent boom cycle.
Right now, these markets face a great potential for price declines after nearly a decade of double-digit home price appreciation. Some of them are already slamming the brakes on appreciation.
Growth potential
Estimates show that the number of people aged 55 to 64 years will increase by 65% from 21.4 million in 1996 to about 35 million by 2010. Meanwhile, the number of people older than 65 years is predicted to increase by 16% from 33.8 million to 39.4 million. Meanwhile, the age brackets below 55 are not estimated to grow as vigorously.