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Boomers a Boon to Urban Home Builders

A Chicago neighborhood.
Ken Illo | Flickr | Getty Images
A Chicago neighborhood.

Bobbi and Jack Segel have adored their enormous Victorian home in Highland Park, Ill. for nearly two decades, but it seems so quiet there now. Too quiet.

"This is a huge house. I don't have kids running out any more. The dogs are gone," said Bobbi with a nostalgic laugh.

Classic empty-nesters, the Segels are heading to Chicago, opting for more action rather than so-called "active adult" communities that builders have created out in many suburbs.

"Here at 9 o'clock at night, you're looking for a restaurant, you can't find one. The city is one o'clock, two o'clock in the morning; people are walking around. It's exciting," Bobbi said.

It is a growing trend among Baby Boomers, defined by the U.S. Census as those born between 1946 and 1964. Many of them are putting their big suburban homes on the market again, after waiting out the housing crash.

(Read More: Buy Now, Move in Later: Rent Your Old Age Home)

Home prices in urban areas did not fall as hard as those in the suburbs, according to John McLain of the Urban Land Institute, and they are recovering far faster. Boomers, whose retirement savings took a hit during the recession, are now more leery of home values and less willing to risk losing again.

"They want to buy something that's secure, and it's been pretty well demonstrated that suburban housing is not as secure an asset as anyone thought it was or that it used to be," McClain said.

Boomers are also looking for walkability, proximity to public transit and diversity. They also want to be closer to their children, who generally head to cities right after college. This is a big change from their parents, who often headed to warmer areas to retire.

"The previous generation had a very tense relationship. The Boomers, with their parents, was not a close comfortable relationship because the Boomers had been an iconoclastic, rebel generation," McClain noted. "They [Boomers] are much closer with their kids."

(Read More: Hitting 65, Boomers Seek Out 'Retirement Coaches')

Seeing the trend, developers are working fast to cash in. Construction in urban areas is booming again, and secondary urban markets, once considered suburbs, are taking shape.

In Bethesda, Md., just minutes outside Washington, DC, cranes dot the downtown, as hundreds of new condominium and rental apartments go up. High-end retailers like Apple, Lululemon, and North Face have moved in, as planners create European-style walking plazas with outdoor eateries.

"Apartment growth in the last 24 months has been significant in Washington, and we are confident that in that growth," said John Tschiderer, vice president of development at Federal Real Estate Investment Trust, a Maryland-based REIT. "The product we are delivering in the locations we are delivering are going to meet our investment opportunities and our strategy."

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Federal Real Estate is developing projects in Boston and building a new urban core in Rockville, Md., just outside Bethesda. They seek urban markets with high barriers to entry, in-fill in areas with large populations with significant income levels—exactly where downsizing Baby Boomers are headed.

"I think it's a lifestyle question, what do I want in my next stage of life?" Tschiderer said, listing education, experience, environment, museums and walkability as pluses to living in an urban environment. "Transit-oriented development is also a big plus in the formula that we use looking at investment."

The nation's big public home builders are still investing in active adult communities, but confidence in the sector is recovering at a far slower pace than that of the overall home building market. The National Association of Home Builder's monthly sentiment index for general housing has risen to 44, while sentiment for the 55 segment is at 28. Anything below 50 is considered negative sentiment.

(Read More: Retirement 101: College Towns Lure Boomers)

"The idea of living out in the suburbs, just with older people, has really disappeared," said Urban Land Institute's McClain.

Bobbi and Jack Segel have had a lot of buyer traffic through their home and hope to be moving into the city by the end of the year.

—By CNBC's Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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