According to the most recent U.S. Census Bureau projections, most of the growth in the number of persons aged 55 and older in the near future will occur because of the aging of the Baby Boomers, who have helped to fuel the growth in the national homeownership rate to historical highs. Broadly speaking, the aging of America and growth in homeownership will have potentially important implications for the housing and mortgage industries for a number of reasons. First, listings by older homeowners are an important source of supply of existing homes for sale, and those older sellers looking to buy another home represent an important source of demand, especially for smaller, trade-down homes or homes with desirable features — e.g., homes with a first-floor bedroom, one-story homes, and condominiums — and in current and future areas of growth in retirees, especially in the West, South, and Southwest. Second, there has been a sustained increase in the demand for second and vacation homes, as well as lots for the building of future retirement homes. Third, there has been recent media attention on empty-nesters selling suburban homes in areas with good schools and purchasing real estate in urban areas to take advantage of urban amenities. Finally, the housing equity of older Americans, which was estimated to be $2.5 trillion in 2000 and has grown even larger in the last few years, is the most important non-pension asset in household portfolios, and a large reserve of untapped wealth. Indeed, there has been substantial interest in the development of new mortgage and financial-market products which allow older homeowners to tap into this wealth. Overall, issues involving housing and aging will be of growing national importance and will have direct bearing on the housing and mortgage industries.
This report focuses on two aspects of the link between population aging and housing and mortgage markets: 1) the potentially increasing demand for second homes; and 2) suburban-to-urban migration among older American homeowners. Specifically, the first part of the report provides a profile of second-home ownership and the mortgage activity associated with second homes for older American households, comprised of individuals aged 50 and older, using data from the 2004 Health and Retirement Study (HRS), a large, nationally representative, random sample of older Americans. The second half of the report provides a profile of home ownership and mobility for metropolitan empty-nest retirement-age homeowners, comprised of individuals aged 50 through 69, using data from the 2005 Current Population Survey (CPS), a large, nationally representative, random sample of older Americans, and the 2000 Census.
There are a number of principal findings:
Second Home Ownership
- In 2004, there were over 43 million American households comprised of individuals aged 50 and older who owned their main residence, of which 15 percent, or 6.6 million households, also owned a second home.
- Most second-home owners either inherited their homes or purchased them with cash. Second-home mortgage originations comprised only about four percent of overall mortgage market originations.
- There are strong regional patterns of demand for second homes, and second-home mortgage activity is heavily geographically concentrated.
- The typical second home is held for about 15 years, but turnover is high: 45 percent of older homeowners with such homes disposed of them within a six-year window. Changes in marital status and health, not income or employment, drive the decision to dispose of a second home and, hence, pre-pay a second-home mortgage.
- Most second-home owners make limited use of their homes: one-half spend 2 weeks or less and two-thirds spend 4 weeks or less per year in the home. Also, only 12 percent of owners intend to sell their main home and eventually occupy their second home.
- Second homes are a small portion of the typical asset portfolio of an older household and are not important drivers of investment decisions.
- Despite anecdotal evidence, the rate of second-home ownership among 50–60 year olds—the peak demanders for these properties among older households—has remained flat over the 12-year period from 1992-2004. The Early Baby Boomers were no more likely to own such homes than older cohorts of homeowners.
- The market for mortgages on second homes for older households is only 6.3 percent of the size of the market for mortgages on primary residences. In aggregate, there is only $126 billion in outstanding mortgage debt on second homes for older households.
- At the national level, empty-nest retirement-age suburban homeowners are not flocking to urban areas in great numbers. In particular, based on the last decade’s experience, in a given five-year period, only two percent of all empty-nest retirement-age suburban homeowners can be expected to move to an urban area.
- Suburban empty-nesters are just as likely to move to a non-metropolitan area as they are to an urban area.
- The suburban-to-urban flow of homeowners represents just 5 percent of the stock of all retirement-age empty-nest homeowners located in central cities. When the urban-to-suburban flow of empty-nesters is taken into account, the net migration effect from the suburbs to urban area is –7.2 percent. Any return of empty-nesters to the urban core is not enough to stem the tide of urban-suburban flight.
- Over all metropolitan areas, 76 percent of empty-nest suburbanites who moved to urban areas were white, 60 percent were married, 25 percent were divorced and just over 40 percent had college degrees and were younger than 55, respectively. About half of these movers had incomes of $40,000 or less, and three-quarters had incomes of $70,000 or less.
- Empty-nest 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.
- Although the housing and mortgage markets associated both with second homes and empty-nest movers are small, they will experience sustained growth as the Baby Boomers age, simply because of the sheer size of the Baby Boom cohort. In the next ten years, the number of second homes is forecast to grow by 2 million housing units according to these projections. However, there does not appear to be substantial growth in second-home mortgage activity on the horizon: the number of second-home mortgages is only forecast to grow by a total of 500,000 loans in the decade.
The report concludes with a summary of findings and a discussion of the some of the broader implications of population aging for the mortgage industry.