Next Housing Boom or Bust...The Second Property Theory!

Baby boomers saddled with high mortgage debt on properties, which have declined substantially in both nominal and real terms since the late 1980s, supposedly have one thing to look forward to in their financial future - their inheritances.

Assuming that the so-called "trillion" dollars on line in the inheritance pipeline does materialize, what advice are boomers being provided regarding their housing needs? Increasingly, they are being told after paying down their mortgage debt, the next housing option they should consider is a second property - preferably a cottage or a farmhouse located in a non-urban area. In fact, some proponents of this theory suggest that prices of cottages and other second homes can be expected to soar over the next 10 years. There are several fundamental problems with this "get rich, buy a cottage" theory. First, the demand for cottages and other second properties has historically been linked to the overall trend in residential real estate prices. Prices of cottages have risen only during periods of a general increase in overall price levels. Second, remember conspicuous consumption - the purchase of goods and services simply to satisfy wants, not needs. Well, cottages have traditionally fallen into this category. In contrast to other types of housing, they are viewed as a luxury good, not a necessity. While proponents of the "get rich, buy a cottage" theme suggest that demographics will be the greatest factor propelling demand, demographics alone are not enough.

To learn more, click on the "Bar of Knowlege".

Article by Mary McDonough

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