As the housing market is making a slow recovery it's getting help from an unlikely source: Baby Boomers. The United States Census Bureau considers baby boomers to be someone born during the demographic birth boom after World War II between 1946 and 1965. Now-a-days as baby boomers are about to start collecting Social Security they are also bringing in some much-needed help to the housing market as they benefit from reduced home prices and low interest mortgage rates by getting ready to buy their next home a few years early.
Even before the housing crash began a year ago, baby boomers were already playing a big part in the real-estate market, and today their influence is growing even more.
From a report recently released by the National Association of Realtors, people over 55 bought slightly more than 20 percent of the homes that were sold in 2008 which was up from 13 percent compared to 2001. Today, about one out of every four baby boomers now either owns land, a vacation home, or a rental property besides the home that they currently reside in. Baby boomers are now looking for what is called "transitional homes". These are homes that they can vacation in now and when they are ready to retire these homes will become their primary place of residence.
Many feel that this is a trend that will continue for sometime because as many repeat buyers stop to rebuild the savings and the equity they lost in their homes over the last couple of years, more retirees will buy their way back into the market as the economy also recovers.
Some financial analysts have concerns that carrying the cost of having two properties might be unexpectedly high because of the costs incurred with finding tenants, doing repairs and improvements to the properties as well as managing the properties.
Baby-boomers are looking for single-level homes, smaller floor plans, and even homes that have amenities aimed at older home buyers, such as larger medicine cabinets, nonslip floors, and lower kitchen cabinets.
Baby boomers are not into the much-hyped universal design features like lever-handle doorknobs and wider doors and hallways, because more than likely baby-boomers do not see themselves as older or feeble. That could also explain why the newest retirees also do not prefer to reside in age-restricted communities like their already-retired predecessors.
One difficult hurdle that pre-retirees are facing in today's housing market is the fact that they'll have additional challenges in financing their purchases than they did a couple of years ago. Before, most buyers bought second homes with cash-out refinances of their primary homes, but now, with less equity available in their primary homes, they are beginning to take on mortgages for their second homes too. Second-home mortgages are more readily available than they were 8-10 years ago and require higher credit scores and bigger down payments which can be as high as 20 percent.
Baby boomers with substantial assets in their IRA's, they can use that cash to invest in their retirement home, however there are more complexities involved with this type of transaction. Financial advisors are telling baby boomers that if they do buy a home this way then they will have to treat that home as an investment. Therefore they won't be able to use it as a vacation home or as a rental property at below-market rates to family and friends. It is suggested that if someone wants to use this tactic to buy a retirement home, they should consult with a financial professional. There are many complicated rules regarding this type of purchase.
This article is for informational purposes only. Individuals should consult with qualified professionals on each individual's particular situation. This article should not be construed as legal advice.