2nd-home boom called hype

Your Money

November 12, 2006|By Gail MarksJarvis | Gail MarksJarvis,Chicago Tribune

Edward Laginess enjoys sipping his midmorning coffee on an expansive veranda overlooking mountains near Palm Springs, Calif., and living the life that dreams are made of.

It's his second home, in a midrise condominium complex filled with people like him -- baby boomers in homes-away-from-home. Normally, Laginess lives in Chicago, where he works as a vice president for Juno Lighting Group. At age 55, Laginess divides his time between two homes -- enjoying golf, sun and mountains in Palm Springs and a paycheck and friends in Chicago.

There's a popular notion that baby boomers are making a habit of living like Laciness -- buying second homes either on ocean fonts, lakeshores, mountains or in lively urban downtowns. Some people are snapping these homes up in part as investments, perhaps to be sold at significant profit to a retiring boomer.

But Gary Engelhardt, a Syracuse University economics professor, says the notion of these waves of buyers is largely a myth. And he warns people to beware of investing based on hype that seems questionable.

In research done in conjunction with the Mortgage Bankers Association and the Radian Group credit risk management company, Engelhardt found that only a small proportion of older Americans have second residences.

The research showed that baby boomers don't have greater tendency to indulge in second homes than the previous generation.

The research found more movement between suburbs by empty-nesters than into urban playgrounds.

Engelhardt scoured government data from a 2004 health and retirement study, a 2005 population survey and the 2000 census to measure mobility by early baby boomers -- people born between 1946 and 1955. The surveys do not yet capture activities by younger boomers, so Engelhard can't be sure what they will do.

But other research shows that younger boomers and the Generation X group behind them may be more financially stressed than today's fiftysomethings as they prepare for retirement.

In particular, the growing tendency of employers to stop providing traditional pensions --with guaranteed monthly payments -- is expected to weigh heavily on future retirees. Expected cuts in Social Security and Medicare could add pressure.

So Engelhardt said people now in their 40s may end up with less ability to treat themselves to second homes than people nearing retirement or already in it.

What he knows is that the data debunk the perception that recent empty-nesters are shunning the suburbs and indulging in second homes.

Engelhardt found that about 80 percent of the moves suburbanites made in their 50s were to a home in another suburb. Only 11 percent moved into central cities. Just over 52 percent of city dwellers who moved went out to the suburbs.

New condo developments in cities have major competition from suburban retirement housing, he said.

"These are different retirement communities. There is no boccie ball or bingo. Instead people are attracted by golf courses, green spaces and wooded areas."

Mark Nash, a Chicago real estate broker and author of 1,001 Tips for Buying or Selling a Home, said he has been trying to prepare people for a slower market. He is encouraging them to think of a condo in the city, or a second home, as a place to enjoy, not an investment.

Still, he has difficulty connecting Engelhardt's findings to his own experiences with empty-nesters. He says they frequently comment: "We don't want the two-story colonial in the suburbs. We want to walk to work downtown and be close to restaurants, the opera, Cubs and Bear games."

Karl Case, a real estate economics professor at Wellesley College, said he hears the same thing in the Boston area.

"I know six couples well that have sold their suburban homes and moved to Beacon Hill and Back Bay," he said. That creates the image of a mass movement. "But it is very anecdotal. It is very hard to find the results in the data."

Like other researchers who have dug into the habits of the vast baby-boom population, Engelhardt has found more fantasy than fact.

For example, in a study of the baby-boomer generation in 2004 Duke University sociology professors Mary Elizabeth Hughes and Angela O'Rand found that rather than a homogeneous group of affluent adventure-seekers, boomers at midlife had a wide range of income and educational levels. And wage inequality was more pronounced in that generation than in any other group.

Rather than accumulating second homes to enjoy the stereotypical active Boomer lifestyle, Engelhardt found "there is no upward trend, and baby boomers own second homes at the same rate as their parents."

In 2004, 15 percent of individuals age 50 and older owned a main residence and a second home. That was slightly higher than the 14 percent of 1998, but essentially the same as in 1992, Engelhardt said.

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