About 25 percent of baby boomers own one or more types of real estate in addition to a primary residence, and boomers own 57 percent of all vacation and seasonal homes and 58 percent of rental property, according to a survey conducted by Harris Interactive for the National Association of Realtors trade group.

The baby boomers study, based on responses from about 2,000 U.S. baby boomers born from 1946-64, also found that home equity accounts for about half of the net worth for middle-income boomer homeowners, and about nine in 10 of boomers earning $100,000 or more each year are homeowners.

About 19 percent of survey respondents are renters, 37 percent say they have just enough to make ends meet, and 17 percent say they are having financial difficulty, the survey revealed.
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About 13 percent of respondents own land, 8 percent own rental property, 7 percent own a vacation home or seasonally occupied property, 2 percent own commercial real estate and 3 percent some other kind of real estate.

About 40 percent of respondents intend to convert their vacation home into a primary residence in retirement, the Realtor group announced. Analysis by NAR shows baby boomers are proportionately more active in the second home market, owning about 57 percent of all vacation and seasonal homes and 58 percent of rental property.

Ten percent of boomers said they plan to buy some form of real estate within the next year, which corresponds with U.S. Census Bureau data that shows 3.5 million boomer households moved during the past year, according to the announcement. Two-thirds are considering a primary residence, but the rest are thinking about land, second homes or commercial property, the survey found.

“Most of the 78 million baby boomers are far from retirement, with diverse plans and timelines resulting in different housing requirements and significant shifts from patterns established by earlier generations,” the Realtor group reported.

David Lereah, NAR’s chief economist, said in a statement, “The differences from past generations — and between baby boomers themselves — will have a significant impact on housing needs over the next 10 to 20 years that is very different from the World War II generation, and many boomers simply don’t know how they’ll retire.”

He added, “A significant portion of baby boomers married later in life and had children at a later age, which means many will continue to work beyond the traditional retirement age. Older boomers are thinking about retirement, but one-third expect to go back and forth between periods of work and periods of leisure and another 35 percent want to work at least part-time or start a business — all of this will have an impact on the kind of homes they buy as well as where they buy them.”

The median age at which baby boomers expect to stop working is 70, but 27 percent say they never intend to stop working, according to the survey.

“Because they will be in the workforce longer, boomers will postpone purchase of retirement property and won’t be making those moves as early as assumed,” Lereah said.

About 42 percent of survey respondents said they would like to retire in the South, 32 percent in the West, 15 percent in the Midwest and 12 percent in the Northeast.

Most boomers live in two-income households, with a median income in 2005 of $64,700, which is 31 percent higher than the median for all households. This generation makes up 37.5 percent of U.S. households, but receives nearly half of all aggregate household income.

Thomas M. Stevens, NAR president and senior vice president of NRT Inc., said in a statement that the survey shows most boomers want professional services when they buy real estate. “When buying a home, they want agents to represent their interests in the complex transaction process, and when selling they want help to establish the right asking price. Regardless of whether they’re buying or selling, boomers want agents to explain all of the complicated contracts, forms and agreements, to manage the closing process from start to finish, and to negotiate on their behalf,” Stevens said.

About 75 percent of respondents said they are not financially prepared for retirement, and many expressed anxiety about their ability to retire. Some boomers said they might withdraw retirement funds for housing or real estate expenses.

Peter Francese, an independent demographic trends analyst who served as a consultant for the survey results, said in a statement, “For the vast majority of baby boomers, retirement is somewhere off in the future,” he said. “Considering that boomers are healthier than their predecessors, and are more likely to work in an office setting, many of them may work five or 10 years beyond the traditional retirement age of 65.”

Half of the respondents who live in an urban area said they would like to retire in a small town or rural area. Their ideal retirement location characteristics include a lower cost of living, being near family, quality health care, better climate and being near a body of water, the survey revealed.

More than a third of all baby boomers want to retire in an urban or suburban setting, motivated by quality health care and cultural activities. Half of responding boomers said they would consider living in an age-restricted community.

Francese speculated that boomers may choose a larger home than earlier generations. “Boomers may want or need a somewhat larger dwelling that includes one or two home offices, and a low-maintenance home on a single level would have broad appeal to this group,” he stated.

About one in four boomer households have a high net worth of $500,000 or more, and this ratio is expected to increase in the future as the generation ages, the Realtor group reported. Virtually all high-net-worth households are homeowners (97 percent), and 47 percent are likely to also own other real estate in addition to their primary residence, according to the survey. More than a third expect to help children or grandchildren with a down payment on a home. Wealthier boomers said they want amenities where they retire, including cultural activities such as museums and art galleries. As a result, they are more likely to retire in an urban area or city.

Although most boomers are married couples and 27 percent have children under the age of 18, nearly two out of five baby-boom households are nontraditional households, most of which are headed by women, the survey revealed.

Twenty percent of boomer households are headed by women, but because women 60 to 69 account for a quarter of homeowners in that age group, the number of women boomer homeowners is likely to increase much faster than average as they age, the Realtor association reported.

Francese said there’s little doubt that the vast majority of baby boomers will delay retirement. “Some will put off retirement because they have to, but many because they want to,” he said. “Many will have a larger income stream to purchase possibly two homes, which they may use to move back and forth between their retirement life and their working life.”

He also noted, “Surveys of future intentions often include a dose of wishful thinking, and attitudes can be influenced by the media and other outside pressures. For example, many are probably not going to be able to, or even want to, retire in a small rural town far from their current home, even if they may dream about it currently.”

The “Baby Boomers and Real Estate: Today and Tomorrow” study was conducted online between March 31 and April 6, 2006, among a nationwide cross section of 1,969 U.S. adults born from 1946-64. Figures for age, sex, race, education, region and household income were weighted to bring them into line with actual proportions in the population, the Realtor association reported. With 95 percent certainty, overall results have a sampling error of plus or minus 2.2 percentage points, with a higher sampling error for various sub-sample results.

Most home buyers need a mortgage to buy a home. Before a mortgage is approved, the lender or mortgage broker usually hires an appraiser to verify the market value of the property. Ideally, the appraised value matches the price the buyer has agreed to pay.

When a property appraises for less than the purchase price, the transaction can be in jeopardy. However, a low appraisal won’t necessarily stand in the way of the lender granting the loan if the borrowers are making a large cash down payment.

For example, let’s say you agree to pay $1 million for a property, and you have $300,000 for a down payment. The appraiser puts a $950,000 value on the property, which is less than you’ve agreed to pay. You’re a well-qualified buyer, so the lender is willing to give you a loan for 80 percent of the appraised value, or $760,000.

With a $300,000 cash down payment, you only need a $700,000 mortgage. So, the sale can proceed unless you have a problem buying a property that appraised for less than you agreed to pay.

Most buyers would rather have the property they’re buying appraise for the purchase price. But in some cases a house fits the buyers’ needs so perfectly that a low appraisal is irrelevant to them as long as they have the cash to close the sale.

A real problem develops when the buyer doesn’t have the additional cash to put down to make up the difference between the appraised value and the purchase price. This can easily happen if the buyers are making a low cash down payment in relationship to the purchase price or they are putting no cash down at all.

Low- and no-cash-down buyers often wonder why it should make a difference to the seller how much cash they put down if they are approved for the mortgage. It can make a big difference if the appraisal comes in lower that the purchase price and the buyers have no additional cash to put down.

HOUSE HUNTING: What can you do in this situation? One possibility is to ask for a second appraisal. There are a lot of new appraisers in the business today. Many don’t have much experience. Make sure you insist on an appraiser who is experienced and knowledgeable in the area where the property is located. .

Another option is to ask the sellers to renegotiate the purchase price. Although no seller is thrilled about accepting less than the negotiated price, this option may work if the seller’s prospects of getting a higher price are slim.

Some buyers recently made an offer in competition on a home in the Crocker Highlands section of Oakland, Calif. In the frenzy of the bidding contest, they offered a price that could not be substantiated by the recent comparable sales. The sellers, who had a good understanding of local market value, agreed to accept a lower price and the sale went through.

But if the seller had said no, and they backed out of the deal, their deposit could have been at risk unless the contract included an appraisal contingency that made the purchase subject to the property appraising for the purchase price.

Be aware that refinance appraisals don’t necessarily reflect market value. Sometimes a refinance appraisal comes in at a lower price than would be the case if the property was sold on the open market. When this happens it can prohibit a refinance from going through.

THE CLOSING: Refinance appraisals also come in on the high side, which gives homeowners unrealistic expectations of the market value of their home.

The other day a car salesman boasted to me that he was a consummate “professional,” and that he always did his job in a “professional” manner. I asked him how he knew that this was so, and he engaged in a long-winded conversation about satisfied customers, pleasing the manager, and being able to sleep at night. I listened carefully and wondered how he was so certain that he was meeting “professional” standards.

He was in a hurry so I didn’t bother to explain to him that there really is a technical, traditional definition of “professional” status, which includes three criteria: 1) specialized knowledge; 2) group identification and membership; and 3) agreed-upon education and training, including ethics training, certification by examination and continuing education.

While he might have met the first two criteria, I wasn’t sure that he could meet the third. To attain professional status, someone selling goods or services must be obligated to follow certain, written ethical standards of practice. This allows individuals in a specific industry to maintain specific behavioral expectations amongst themselves as well as toward their target consumers. Without a written code of ethics, standards are nebulous and therefore cannot be formally learned or enforced. This breeds moral chaos.

In contrast, with written moral standards, certification and training, individuals have a real opportunity to develop clear expectations and trust amongst themselves and consumers. In this case, they could actually become professionals.

The Value of Having a Fiduciary Duty

One of the earmarks of being a professional is that an individual has a fiduciary duty to each of his clients that is clearly spelled out in a written code of ethics. Two good examples of professional status are lawyers and Realtors.

In contrast, non-professionals are workers who do not have a fiduciary obligation toward the people with whom they do business. The extent of this individual’s ethical obligation is usually delineated by contract (which also makes it a legal obligation), informal standards of the industry, or traditional expectations of the company for which he works.

Two good examples of non-professional status are courtesy clerks at grocery stores (formerly called “boxboys”) and haybailers (usually young men who stack bales of hay onto flatbed trucks). More specifically, having a fiduciary duty requires a professional to never put his own interest above the interest of his client. It requires the highest good faith and fair dealing, which often requires the sort of guidance a parent provides to his or her children.

Professionals who carefully abide by their fiduciary duties consistently and fully create trust in consumers and in potential customers. This is good for business. Without this fiduciary duty carefully delineated in a written code of ethics, it is much more difficult for a group of individuals who work in a service industry to create trust amongst members of the public.

One of the chief knocks against reverse mortgages is that the most popular program does not go far enough in extending seniors the funds they need.

The Home Equity Conversion Mortgage, or HECM, is insured by the Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development, and makes up more than 80 percent of all the reverse mortgages written in the country. The maximum loan limit is pinned to the homeowner’s age, home value and home location. The location dictates the maximum claim amount, which varies by county. These amounts can range from $200,160 in rural areas to $335,800 in urban areas.

Last month, the U.S. House of Representatives took a giant step towards eliminating the geographical barrier by passing the Expanding American Homeownership Act of 2006 (H.R. 5121), which would create a single national loan limit for the HECM program equal to the conforming Freddie Mac loan limit of $417,000 for 2006.

A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their homes, without having to sell the home, give up title, or take on new monthly mortgage payments. Loan proceeds can be used for any purpose, and can be taken out as a lump sum, fixed monthly payments, line of credit, or a combination. The loan amount depends on the borrower’s age, current interest rates, and the value and location of the home.

A reverse mortgage does not have to be repaid until the borrower moves out of the home permanently, and the repayment amount cannot exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or the borrower’s estate. A senior’s home does not have to be owned free and clear to qualify for a reverse mortgage. Reverse mortgages are often used to retire existing debt on a home.

The early reverse-mortgage programs got a poor reputation because some were flawed and contained huge appreciation shares for the lender coupled with big-time upfront fees. Now, with the federal government insuring a majority of the reverse mortgages with no lender equity shares, the concept has become more acceptable and recognized by consumers.

Raising the local loan ceilings for senior borrowers would be well received. Two privately funded national studies showed participants were frustrated with the inability to fully tap their large and growing equity. Respondents noted their increasing property values and living expenses, as well as their difficulty in making ends meet with the current HECM loan limits.

The Expanding American Homeownership Act, which passed 415-7, would make other substantial improvements to the FHA HECM program. The new legislation calls for a “home purchase” option that would allow people to use a reverse mortgage to purchase newer housing that better suits their needs plus removing the volume cap on the number of HECM loans that FHA can insure.

President Bush also issued a statement thanking the House for passing H.R. 5121and urged the Senate to pass its own version, known as S. 3535.

Rep. Jay Inslee, D-Wash., who co-sponsored the elimination of the loan cap, said a single national limit would put more cash in the hands of more seniors who need it.

“We’ve found that our country’s seniors really need help with health care and assisted living,” Inslee said. “They are equity-rich but cash-poor in a lot of circumstances. By freeing up more potential cash from their home, many more of our seniors can live more comfortably.”

Another part of the bill would require HUD to study the mortgage insurance premiums charged on a HECM loan. This bill gives the FHA the authority to charge fees based on the borrower’s risk of default. Currently, the FHA charges all borrowers the same 1.5 percent upfront fee and 0.5 percent annual fee for mortgage insurance, regardless of the borrower’s risk of default.

Under current law, the FHA may guarantee a cumulative total of 250,000 such loans. When Congress created the HECM program in 1988, this 250,000 “cap” was imposed so lawmakers could periodically monitor the program’s performance and costs to the government. Now that the program has a track record, there’s no continuing need for a cap because the HECM program generates sufficient funds to cover its costs through mortgage insurance premiums paid by borrowers.

The housing boom that followed the dot-com bust was not an artificial bubble created by low interest rates and speculation, but a product of increasing wealth, changing demographics, and new mortgage products that helped renters become homeowners.

That’s the conclusion of a study by two economists at the Federal Reserve Bank of Chicago. If the study’s assumptions are correct, it suggests there are solid economic fundamentals underpinning housing demand, and the current slowdown in the housing market won’t amount to a bust.

The conventional wisdom is that the Federal Reserve helped fuel demand for housing by slashing interest rates to historic lows after the stock market tanked in 2001, economists Jonas D.M. Fisher and Saad Quayyum say in their study, “The great turn-of-the-century housing boom.” (Study can be found at this link: http://www.chicagofed.org/economic_research_and_data/economic_perspectives.cfm.)

Those who subscribe to that theory say easy credit encouraged speculators to buy property, which artificially inflated home prices. Now that the Fed has restored interest rates closer to their traditional levels to keep inflation in check, credit is tighter and housing prices must fall in response — or so the theory goes.

Although Fisher and Quayyum don’t tackle the issue of housing prices directly, they conclude that the underlying demand for housing was, and remains, real.

“This is not to say the monetary policy has not been unusually loose, but that to the extent it has been loose, this is not what has been driving spending on housing,” the economists write.

That spending has been remarkable. Investment in residential property, measured as a percentage of gross domestic product, has risen to levels not seen since the 1950s, the authors note. In 1991, residential investment spending was at a near historic low of 3.5 percent of GDP. Last year, it passed 6 percent for the first time since the post-World War II housing boom.

The increase in spending on new housing is largely explained by wealth created by technological innovations over the last decade, Quayyum and Fisher claim. Using complex algorithms, they studied how not only monetary policy, but technological advances and their resulting economic impacts, affect investment in residential property.

The results suggest “the unusually high levels of residential investment in recent years may just be the direct result of the wealth accumulation from previously high rates of technological progress.” Investment in real estate, the authors conclude, appears “to have been driven mostly by fundamentals and not unusually loose monetary policy or speculative building.”

Another factor behind the high levels of residential investment is the rate of home ownership, which is at an all-time high. The rate of home ownership, which actually declined in the 1980s after four decades of growth, rebounded in the mid-1990s, reaching a record 69 percent by 2005.

About half of the increase in the home-ownership rate can be explained by changes in the demographic, income, educational and regional structure of the population, the study concluded.

In a reversal of a trend seen between 1978 and 1993 — when home-ownership rates for households headed by those under 40 declined — a growing percentage of young people are becoming homeowners. Between 1993 and 2003, the home-ownership rate for 25- to 29-year-olds grew at a faster rate than those aged 30 to 74.

Home-ownership rates are up almost across the board, regardless of race, age, gender or region. Between 1993 and 2003, home-ownership rates fell in only two types of households: those with four or more adults, or those in which the head of household has less than a high school education.

“That the increase in home ownership cuts across so many different categorizations suggests that the overall home-ownership rate is not merely reflecting changes in the distribution of the population among the categories. Something fundamental about the home-ownership process has changed,” the study theorized.

What’s changed, the economists say, is mortgages. In the last 10 to 15 years, a slew of new mortgage products aimed at first-time home buyers have been introduced. The secondary mortgage market has grown, allowing many different kinds of mortgages to be sold as securities. At the same time, technological advances have reduced the cost of approving mortgages and given lenders more precise measurements of a borrower’s credit risk. Specialized firms have sprung up to capture different segments of the market, such as origination, servicing and securitization, the authors say.

The availability of new mortgage products like combo loans, subprime mortgages and no-money-down loans — not low interest rates — has driven up home-ownership rates, Fisher and Quayyum maintain.

“Historically, we have seen large swings in mortgage rates without large changes in the home-ownership rate. So we conclude that the cost reductions and increases in the supply of capital to the mortgage market are likely to have had a relatively small impact on home ownership,” they say. “In contrast, the development and dissemination of many new mortgage products have made it possible for large numbers of people to acquire mortgages who would have been unable to previously.”

The economists backed up their case with numbers. In 1993, 7.9 percent of first-time home buyers said they made no down payment on their mortgage. That percentage had risen to 12.1 percent by 2003.

Numbers on subprime loans are harder to come by, but the authors calculated that subprime mortgages were issued for 673,000 home purchases in 2002 — nearly three times the 242,000 issued in 1994.

That increase dovetails nicely with a 1.5 percent increase in vacancy rates between 1994 and 2002, allowing Quayyum and Fisher to conclude that the 431,000 extra homes purchased using subprime loans in 2002 accounted for 76 percent of the 570,000 additional vacant rental units on the market that year.

“We conclude that substitution away from rental housing made possible by developments in the mortgage market, such as subprime lending, could account for a significant fraction of the increase in residential investment and home ownership,” the study said. “The current spending boom thus may be a temporary transition toward an era with higher home-ownership rates and spending on housing, which will ultimately move nearer to historical norms.”

If you will be dropping off a college student for the fall term, it might be worth your time to check the prices of homes for sale near campus. Not only have some red-hot markets slowed considerably, but the housing cycle could move back into positive territory by the time your student graduates.

Some of the more consistent and stable real estate markets for traditional second homes and rental properties are the residential neighborhoods surrounding established colleges and universities. Why? The school isn’t going anywhere, and visiting faculty, staff and students will always need a roof over their heads.

According to the National Association of Realtors, not only are recent retirees “buying down” to smaller college towns with their educational amenities and vibrant social and athletic environment, but a growing number of business owners with relatively small groups of employees are also moving to smaller college towns for the convenience of research and a larger entry-level employee base. Buying a home in a college town and letting visiting faculty members rent it out and thereby reduce your mortgage is a great way to build an asset.

For parents with college-age children, purchasing a home to rent in a college town makes a lot of sense and provides an attractive alternative to dormitory living. When the student graduates and you are finally free of tuition bills, expensive textbooks and outrageous airline tickets, sell the college rental via a 1031 tax-free exchange and buy a rental condo in the sun that you can periodically enjoy.

One of the safest real estate moves is investing in a single-family residence, or duplex, in close proximity to a college or university. You will have a constant pool of renters, even if you eliminate the uncertain category known as “undergraduate males.” If you are considering purchasing in a college town, it’s always a good idea to know an adult who lives within a 30-minute drive of your rental property. That way, if the entire Greek Row camps in the backyard for the weekend, you can at least send someone to count the tents.

Here’s some quick suggestions you will not find in the campus bookstore:

* Ask the Housing Office what percentage of undergraduates live on campus. Are freshmen and sophomores required to do so?

* What is the cost of dormitory living? What amount does the school earmark for food?

* Does the school offer off-campus units? If so, how many and what is the monthly cost? Gauge your rent from this information.

* Does the school accept private homes as rentals to its faculty? If so, what is the referral fee?

* Initially, advertise your home for rent in faculty and administration circles only. Ask that your attractive flier be posted in the faculty lounge. Remember, not all faculty members are married with children. Two professors, or more, can share your place.

* Married graduate students often are ideal renters. One spouse is the breadwinner, the other a dedicated student. They pay the rent on time, are quiet, and watch movies at home on the weekends.

* While there are a lot of tobacco users on any campus, don’t allow them to live in your home.

* If you begin to get desperate for occupants, remember that female undergraduates are usually gentler on a dwelling than young men. When in doubt, allow an extra girl (the added income will pay off).

* If you are facing foreclosure and thus must rent to undergraduate males, send a cleaning service once a week and build the charge into the monthly rental amount. Not only will the service curtail damage, but also you can ask about extraordinary findings. When in doubt, do not allow an extra boy (the added income will not cover the extra wear and tear).

Some Realtors suggest that parents think “condo” rather than “single-family dwelling.” That’s because students rarely prioritize maintenance and upkeep issues that ultimately protect the investment. A condo eliminates chores such as grass cutting and gutter cleaning that need to be handled in a conventional home.

If you are a parent with college-bound kids, try to estimate how many years you expect your child to live in the near-campus rental. Many accountants advise parents with college kids to approximate what home prices will be when the student’s course work is done. And, if he or she transferred, would you want to rent to students who are not family members?