Baby Boomers impact Real Estate Bubble
by John G. Agno
Published on this site: April 5th, 2005 - See
more articles from this month...
Baby Boomers continue to fuel the real estate bubble by buying
second homes.
Throughout their lives, Baby Boomers' self-indulgent behavior
has had an impact on society. From using their parents' wealth
to finance their college education and putting their stamp
on the "Age of Aquarius" during the 1970s to buying
the best cars, homes and personal technology in middle age,
the "me-first" generation has now decided that second
homes are another birthright as they approach retirement age.
The typical vacation- home buyer is a 55-year-old making $71,000
a year whereas the typical investment property buyer is 47
years old with an $87,500 annual salary.
Second homes soared last year and accounted for more than
a third of all residential sales transactions. A Washington-based
National Association of Realtors (NAR) study showed that nearly
one in four U.S. homes bought in 2004 was purchased for investment
purposes; 13 percent were bought as vacation homes. Together,
that constituted the surging second-home market, which accounted
for 36 percent of the 7.7 million homes sold in the country
last year. Second home sales rose 16.3 percent from 2003.
However, anyone counting on continued home appreciation to
fund their retirement are likely to face a big shortfall as
the real estate bubble bursts. Interest rates are expected
to keep rising and higher borrowing costs are already pricing
potential home buyers out of the market. In housing and automobiles,
affordability is determined by monthly payments, including
taxes and insurance.
As higher rates dampen demand, the effects will spread to the rest
of the economy. More important than housing's direct affect on the
economy will be fallout from the slowdown in home-price appreciation.
This is where the economy will be most vulnerable. The easy availability
of refinancings and home-equity loans have allowed consumers to
tap into the equity built up in their homes. The Federal Reserve
found that the average household extracted $26,700 in equity with
each refinancing. That provided a welcome boost to demand as recession,
terrorist attacks and a sagging stock market were dragging down
household purchases. Now the refinancing windfall is going away.
John G. Agno, certified executive & business coach Signature,
Inc., PO Box 2086, Ann Arbor, MI 48106 Telephone: 734.426.2000 (US
Eastern Time Zone) Email: mailto:[email protected]
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