Housing Industry Adapts to Not-So-Retiring Baby Boomers

By Ilyce Glink and Samuel J. Tamkin
Saturday, May 17, 2008

Are you a baby boomer? Statisticians consider anyone born from 1946 to 1964 to be one.

The first of the baby boomers are now turning 62, just old enough to start collecting Social Security and qualifying for reverse mortgages. In 2029, those baby boomers born in 1964 will turn 65.

But for all these baby boomer Americans, retirement looks a whole lot different than it did for their parents, according to Gene Warren, president and chief executive of Thomas, Warren and Associates. Warren, an economist who specializes in the study of retirement, helps developers and communities figure out how they're going to attract future retirees.

For example, baby boomers are much more likely than their parents were to move when they retire. At last week's annual meeting of the National Association of Real Estate Editors in Dallas, Warren said that, typically, just 10 percent of retirees move. He expects 20 percent of those people retiring in the next 21 years, approximately 18.2 million individuals by his estimate, to relocate.

Another difference: Baby boomers are activity-driven, Warren notes, unlike their parents, who are from what he calls the "silent generation."

"Boomers are much more active than their parents were. They are amenity-migrants, not sun-migrants. They're not necessarily going to buy a house on a beach, but will look at all the amenities in the area," Warren said.

Deborah Blake, a vice president of marketing for Pulte Homes who works extensively with the Del Webb-branded senior communities, said today's seniors are looking for "a purposeful life."

"They're not looking to play golf for 10 years. They're asking themselves, 'What's next?' " Blake said.

Del Webb has found that seniors living in their Sun City developments are fans of lifelong learning, social networking and active volunteering. (The average age of a Del Webb buyer is 62.)

Del Webb has begun shifting the designs of its houses to meet the needs of boomer seniors, including building larger kitchens to accommodate computer technology and dual master suites (for "sandwich generation" boomers caring for aging parents), and creating spare bedrooms that can function as craft studios.

Blake said that looking for a purposeful life has turned seniors on to the idea of leaving a legacy. For them, volunteering "doesn't mean holding someone's hand in a hospital." Instead, Del Webb residents are writing business plans for local nonprofit groups and working with communities to stimulate growth.

Each Del Webb community has an online bulletin board, and local nonprofit groups and community organizations are invited to post their needs on the "volunteer" tab. Over time, Blake said, they've learned that if they ask for a specific skill set, say "event planners," and offer seniors flexibility so they can continue to work out and enjoy local amenities, they'll get a larger response.

Staying mentally and physically fit, "so that the mind and body hit the finish line at the same time," is also a key concern, Blake said.

Finally, 50 to 80 percent of Del Webb community residents continue to work, Blake said, reflecting a widespread concern about financial security. There is a growing concern that many boomers won't have the resources to fully retire and will have to continue to work at least part time.

Architect Carl Malcolm, an associate with James, Harwick and Partners in Dallas, says that even boomers on a limited budget want an amenity-filled lifestyle.

"These folks have the same cellphone, e-mail and Internet habits," he explained. "They are time-starved seniors looking for places they live in to take care of what they don't want to do," he explained, adding, "but the economy overlays it all."

In some of the Atlanta projects his company has designed, Malcolm says, it has been able to cut corners by increasing space flexibility and designing buildings with economical floor plans.

"But we're learning," he said. In the first building, seniors parked their scooters in the hallway and used the landlord's plug to charge up their batteries. "In the second generation, we added a scooter parking area."

Q I regularly read your column , and I have never seen anything positive about real estate agents. You are not accurately portraying the industry or instilling any trust in one of the biggest engines of our economy.

The real estate industry has dishonest people and those who provide substandard or illegal service. Such types can also be found among doctors, lawyers, newspaper columnists, reporters, chief executives and people in every industry out there.

If I were a layman buyer or seller in real estate, I would think by reading your articles that there is nothing good about the industry or the workers within it. I know you receive positive questions and chronicles from happy and well-served consumers; nonetheless, you never seem to choose them for your column.

A recent column was unbelievable. The seller you described is one of the most unreasonable customers I have ever heard of. Any right-minded agent would discontinue service to a person like this. Practically any broker who investigated this complaint, which you say is the course of action to take, would ask this seller to find someone else. Reading between the lines, the home is probably overpriced and the seller has alienated himself from his best asset, the real estate agent.

Nevertheless, I saw no commentary as to how unreasonabl y that person was behaving. I've been successful in real estate for nearly nine years -- never had even the first legal issue -- and have a large group of happy clients.

My suggestion to you is to get real about real estate and be fair and balanced in your approach. Everyone, including you, will be the beneficiary.

AI have written many times about how well real estate agents work for many types of buyers and sellers. In all my books for home buyers, I recommend that buyers use a good, knowledgeable agent to purchase property. For sellers, I think that most will be better served by using a great real estate agent than by going it alone -- particularly in troubled times.

While I receive thousands of questions from people each year, I don't often hear from folks who are delighted and have had a trouble-free home-buying or -selling experience. Most folks with questions about their transactions are in trouble. They have questions about agents who don't understand them or don't do right by them, or have had, for one reason or another, some other unfortunate experience. I choose what I feel is a representative sampling of questions from those that come to the Real Estate Matters mailbox.

You are right that there are many great real estate agents out there and that people should look for those agents. But when people have bad experiences with agents, they have questions about how to fix the situation. These experiences and questions from readers educate other buyers and sellers as to what to expect from their real estate agents.

I also think that many real estate agents today have never seen the type of slowdown we're in. Some agents are used to selling quickly and easily, pocketing their commissions, and moving on. Agents who have been in the real estate business for 25 years or longer have seen down times as well as the good times. They understand that real estate is a cyclical business and sometimes it just takes months to sell a house.

There are sellers who are unreasonable about what they want when they sell their homes, and there are buyers who are unreasonable about what they should pay for a home. There also are agents who behave badly, give poor advice and disappear when the going gets tough.

For a large portion of real estate transactions, agents and their clients communicate and interact well, thank each other for their professional behavior, and walk away satisfied. But there are still a good number of problems in the industry, and I'd like to see better interaction between agents and their customers, as I think it would certainly help everyone.

In the meantime, I'll continue to call it as I see it.

My parents own the home that I live in. They would like to sell the property because they need the money. The property is worth at least $300,000. The only income I have is $140 per week in court-ordered child support. My idea is to get a mortgage for $230,000. I'd pay my parents $200,000, or something like that, so that they can have most of the cash value, but the bank would have some equity/collateral as an incentive to give me the loan. I could then use the extra $30,000 to pay the mortgage, which would be about $1,600 per month, until I get back on my feet financially or sell the property.

Is there any jargon or terms I can study up on, and does this sound possible, or can you make any recommendations?

This sounds like a good idea, but in reality, few if any banks will give you a loan if you have an income of $140 per week. That's an income of $7,280 per year. A 30-year, fixed-rate $230,000 loan at 6 percent would cost you $1,378 per month, and that doesn't include an escrow for real estate property taxes and homeowner's insurance premiums.

You would need to have income of maybe $100,000 to afford a home that costs $300,000, or you would have to have significant other assets to give the bank a reason to give you a loan.

If you are looking for a place to live and your parents can't wait to sell their home, you should plan to move out of your parents' house and into an inexpensive rental. With the cash they get from the sale, perhaps they can help you pay your rent until you're back on your feet.

I don't know what your credit history or credit score looks like, but these days, lenders are looking for a credit score of at least 680. Visit AnnualCreditReport.com and pull a copy of your credit history. You can then pay about $7 for a copy of an Equifax credit score, which is the one closest to what mortgage lenders use.

If your credit score isn't at least 680, take the next year or two to work on rebuilding your financial life: Find a job, rent an apartment, start saving the 5 or 10 percent you'll need for a down payment, plus extra for reserves, and work on cleaning up your credit history.

Once you've started your new job, rebuilt your credit history and raised your credit score, you can start looking for a house to buy.

If your parents want to wait a couple of years before they sell their home, you might be in better shape then to buy it from there.

My daughter and son-in-law got married two years ago and bought a house. Her name is on the deed but not the mortgage. She gave him $35,000 for the house. What are the consequences in case of a divorce?

If your daughter's name is on the title to the home, then she's one of the owners of the property. She may own half of the home, or a smaller or larger percentage, depending on how the ownership of the property was structured. If she and your son-in-law were married when they bought the property, it's possible that they structured the ownership as "tenancy of the entirety" or as joint tenants, which means that they both own the home jointly.

The fact that your daughter isn't listed on the mortgage documents only means that she has no legal liability to pay back the mortgage. If your son-in-law stops paying the mortgage for whatever reason, the mortgage company would not be entitled to come after your daughter for payment. And, better yet, her credit shouldn't be damaged by his poor financial management skills.

She and her husband should come to some financial agreement, in which, in a sale, he would give her an amount of cash presumably equal to her down payment of $35,000 plus half of any equity appreciation in the property, minus her share of the costs of sale. In exchange -- and it should only be when she gets the cash -- she would execute a quitclaim deed, turning over any financial interest she owns in the property to him.

Likewise, the home could end up being owned by your daughter, as the home would be one part of the whole picture. All the marital assets would have to be included in any divorce settlement. For that, your daughter would need to talk to a divorce lawyer to determine what she would be entitled to and the different ways the couple might divide their assets upon divorcing.

Which is worse: bankruptcy or collection?

I'm assuming that you're wondering whether bankruptcy or a collection is worse for your credit history or credit score. Neither is good, but bankruptcy will stay on your credit history for 10 years. It will affect your credit score less dramatically as the years pass, especially after about four or five years.

Having a collection on your credit history, however, isn't a bed of roses, either. Collections can stay on your credit history for up to seven years, although, as with a bankruptcy, their impact will fade with time.

Different types of collections can have different effects on your credit score. A collection for a $100 debt, unrelated to a mortgage or credit card, will not affect your credit score as much as a failure to pay a credit card debt, particularly if the credit card company moves against you to collect.

We bought a home in 1999 and lived in it until December 2007. We moved to a new home and, because it was winter, rented out our old home for three months and then put it on the market and sold it. Should we report the sale of the home to the IRS?

It's nice to hear about a home that actually sold relatively quickly in these troubled real estate times. Good for you! As for reporting it to the Internal Revenue Service, that depends on whether you are referring to the reporting requirement at the settlement or the closing of your sale, or upon filing your federal income tax return.

If your sale exceeded $500,000, your sale needs to be reported to the IRS, but that may have already happened at the closing. Almost always, the IRS form will be filed by the title company or closing agent.

In terms of reporting your profit or loss from the sale of your home, you would do that with the filing of your federal income tax return for the year in which the home sold.

You and your wife are able to keep up to $500,000 in profits (up to $250,000 if you were single) from the sale of your personal residence. Your house qualifies because you lived in it for two of the past five years and you rented it for only a short time.

If you're close or seem to be just over the $500,000 mark, make sure you've included all of your expenses in the calculation of your cost basis: Take the price you paid for the home, and add to it the costs of purchase, the costs of sale and the cost of any capital improvements (think structural improvements, not decorating) to the property. Then subtract that amount from the sales price of the property.

Depending on whether the title company or settlement agent reported your sale to the IRS, you may have to include additional information on your tax return even if you have no federal income tax to pay resulting from the sale.

For more details, consult your tax preparer.

I had a loan for more than 80 percent of the value of my home. My loan required me to purchase private mortgage insurance. I recently had to do a deed in lieu of foreclosure because I could no longer afford the increases in the adjustable-rate mortgage. Now the PMI company has come after me for the $43,000 they paid the lender due to the deed in lieu. Is the PMI company allowed to subrogate me and go after me for their loss? I thought the PMI was to get this coverage, and that the insurance was a calculated risk on their part.

Historically, one lender never would loan more than 80 percent to any borrower. It was too risky. They wanted to make sure they had a cushion of at least 20 percent equity in case something went wrong financially with the borrower. If the home went down in value, the borrower would suffer the loss first. Property prices would have to fall more than 20 percent before the lender would be affected.

But as housing became more expensive and saving a 20 percent down payment became more difficult, borrowers wanted a way to buy a house with less of a down payment. Lenders came up with the concept of having a mortgage insurance company insure the lender for any losses it might sustain for loans that were greater than the 80 percent of the home's value. But the mortgage insurance company needed to get paid for that risk. That payment came in the form of PMI. The more you borrow above the 80 percent mark, the greater the amount you pay in PMI.

What most borrowers don't realize is this: PMI is only for the lender's benefit. Your benefit (and the reason you paid the premium) was that without buying a PMI policy, you would not have been able to get a loan to buy the property.

Since PMI is for the lender's benefit, if you default on your loan and the property is sold off for less than the loan amount but more than the original loan-to-value ratio -- even if it's a deed in lieu -- your lender gets money from the PMI company. The PMI company is on the hook to your lender for the difference between the 80 percent mark and the amount you borrowed.

When you presented the lender with the deed in lieu, you effectively said to the lender, "Here are the keys to my property; take the keys and let me out of my loan." When the lender accepted the keys, it became the owner of the property.

The key question is whether the lender agreed to forgive the balance of the loan. If the lender agreed, the PMI company should not have the right to come after you.

You mentioned subrogation. That term is generally used in the context of insurance claims. If you have a claim against somebody and your insurance company makes you whole, your insurance company would have rights under that claim to recover the payment it made to you.

In your case, the lender lost out and the PMI company paid the lender money. The PMI company is now coming to you and is trying to recoup its loss.

However, if you simply gave the keys to the lender and the lender didn't have to go through the foreclosure process to get the title to the home, the lender would still have the right to go after you for any amount still owing on the loan. In this instance, the PMI company paid the lender and has the claim that the lender would have had against you.

The bottom line, and it is a point widely misunderstood by home buyers, is that the PMI company can go after you for any amount you still owe the lender, and it can settle that claim any way it wants. If it agrees to have you pay it over time, you can agree on a payment schedule. If it agrees to take a lump sum now for substantially less than the $43,000 you owe, you could agree to that. The PMI company may under certain hardship cases decide to forgo some or all of the amount you may owe.

The key to its claim is its belief that you have the ability and means to pay up. If you do, it will press to get paid. If you don't have the means to pay and go into bankruptcy, it will stand in line with your other creditors and get paid what it can through the bankruptcy proceeding.

Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is "100 Questions Every First-Time Home Buyer Should Ask." Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, http://www.thinkglink.com and http://www.expertrealestatetips.net.

© 2008 Ilyce R. Glink and Samuel J. Tamkin

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