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.

Factors That Affect Cottage Demand

The overall economic environment is much more significant in determining households' short-term expenditure decisions.

In these days of limited nominal income growth and job insecurity, even baby boomers on tap to the inheritance pipeline have become cautious consumers. In this environment, cottages have and will remain a "luxury good". Finally, the preferences of households have changed. Increasingly, primary market research indicates that as a result of the recent real estate bust combined with a slow performing economy, households are not willing to ante up on mortgage debt and real estate. Baby boomer households, in particular, are looking at the opportunity costs of investment in real estate compared to expenditures on a number of other things (home improvements, swimming pools, travelling, etc.) and are increasingly deciding to opt out of large houses and multiple home ownership.

A combination of economics and social change, driven by economic factors, suggest that the demand for cottage properties will not be broadly based amongst the aging baby boomer set and that, as always, careful research should be undertaken by a potential buyer. Leveraging the purchase of a cottage should not be done on the assumption of substantial increases in value in excess of normal trends. If there are still disbelievers out there, they should take a drive up to "cottage country" on any weekend and count the number of "For Sale" signs.

Article by Mary McDonough