Fractional Ownership: Why the Boomers will change second home ownership in the US

1.) Demographics - 78 million US Baby Boomers that will retire in the next 15 years (the largest population turned 50 in 2004-05, with 50th birthdays occurring every 7 seconds). The under told statistic is that there will be 103 million Empty Nesters in Europe by 2009 and Japan will have 32 million boomers by 2010, in a total population of only 127 million people. 213 million Boomers will compete for a uniquely similar lifestyle in retirement.

2.) Boomers Like Debt - Unlike the previous generation, Boomers have proven that they are willing to pay, and borrow for the lifestyle they want. The boomer generation has innovated everything from disposable diapers to SUV's, they will innovate the idea of retirement homes. Vacation Finance has commissioned a study of boomer indebtedness to be released later this year. Reverse Mortgages will be another key to allowing boomers to tap their home equity during retirement for second home ownership.

3.) The Wealth Transfer - Not everyone is going to get rich. Boomers are estimated to get the biggest slice of the inheritance pie: $17.8 trillion. Distributed evenly, each of the 78 million US boomers get $228,205. But these inheritance dollars will not be distributed evenly. The 73.5% of the boomer cohort will likely join the wealthier classes. Within the next 15 years, 20.7 million boomers will become over $658,000 wealthier, and 57.3 million people will get less than $72,900 to boost their meager net worth/retirement. 20.7 million people may be able to afford luxury retirement residences if they innovate to fractional ownership, condo hotel, and private residence clubs. Whole ownership is going to be bid farther out of reach by the sheer mass of this population competing for prime property, a trend that is already under way. Boomers will need to get creative by purchasing a combination of a primary residence, Condo Hotel and Fractional and PRC ownership options, to more efficiently use their limited nest eggs and to have active and dynamic golden years.

Fast Facts:

Traditional timeshare grew 21% to $7.87 billion in 2004, average price $15,784.

High-end timeshare grew 22%, to $1.075 billion, average price $40,270, 50% of owners say they would buy more fractional shares in the future. Only 3% of US population currently owns fractional real estate interests.

The average American worker gets 2.4 weeks of vacation, and will retire at age 62. Many boomers expect to continue to work, possibly in a different career after retirement.

The $100,000+ income cohort is growing 8 times faster than any other income group in the USA. Mortgage leverage has also grown in recent years. These people have money and are not afraid to borrow to own more real estate and lifestyle.

There are 142 fractional projects in the USA, 23% in Florida, 21% in Colorado. That's 549,295 boomers for each project in supply.

The most economical way to own more than one home, is to only own the piece you want to use.

There is also an environmental upside to fractional ownership, more people can 'own' the same parcel of rare-air real estate. These desirable locations are often in the most environmentally sensitive settings.

Bob Waun, Aug 2007
Vacation Finance