Millennials Jumping Into Market as Boomers Retire and Sell

Last month, I wrote about how improvements in the housing market will be different depending on geographic regions of the U.S. This month, I wanted to review how this gradual improvement will also differ based on demographics and generational shifts.

For all of 2016, the share of first-time buyers rebounded to 35 percent – a three-point improvement over 2015 levels -- as well as a positive rebound for this cohort’s historical 40-percent share of the market. 

Obviously, encouraging first-time buyers to grab that first rung of the housing ladder is important, as they can then roll future equity gains into move-up homes, vacation homes and eventually senior housing, which continued to account for 14 percent of sales.

The typical buyer in 2016 was 44 years old, a figure which has remained flat for three years, but the median household income rose again to $88,500. Two-thirds of these buyers were married couples, followed distantly by single women (17 percent), unmarried couples (8 percent) and single men (7 percent).

So what kind of homes did they buy?

Just 17 percent of new homes sold in 2016 were priced under $200,000, for a drop of two percentage points from 2015. A larger drop of three percentage points was noted for new homes priced from $200,000 to $300,000 (32 to 29 percent), while new homes priced from $300,000 to $500,000 increased their share from 33 to 38 percent, lending additional proof that the ‘sweet spot’ for home builders is in this first- and second-time move-up market. Meanwhile, the share of more discretionary homes priced over $500,000 remained stable at 16 percent between the two years.

Looking at just December of 2016, the distribution of sales for new homes moved even further in the same direction, with those priced from $200,000 to $500,000 accounting for more than two-thirds of the total, while the share of entry-level units priced under $200,000 eroded further to 14 percent.

Meanwhile, the existing home market – which the NAR says accounted for 86 percent of all home sales in 2016 – seems to remain the favored option for entry-level buyers. During December of 2016, more than four of every ten existing home sales were priced from $100,000 to $250,000, with another 13 percent priced under $100,000. While there is certainly a robust move-up market for existing homes – with 32 percent of December’s sales priced from $250,000 to $500,000 – when existing homeowners are looking to trade in their starter home for something larger or in a better area, about one-third focus on the advantages of new construction.

Looking ahead to the longer term, two primary demographic trends will continue to drive housing demand.

The first is an aging population, with the number of adults aged 70 and over rising by over 90 percent over the next two decades. The challenge here is ensuring a reliable supply of affordable, accessible housing which can also provide the types of supportive and social services needed as the huge Baby Boom generation continues to retire at the rate of 10,000 per day.

The second main trend is the increasing share of the minority population among the 86-million strong Millennial generation, which is already at 45 percent – a bit higher than the 40 percent share among Generation X and significantly more than the 28 percent share among Baby Boomers.

While it is certainly true that Millennials have been postponing starting their own families and buying their own homes, the five-point increase in 2016’s share of homes bought by first-time buyers would indicate this is starting to change. In fact, over the next two decades, this cohort will increase the population of those aged 30 to 49 years by 17 percent.

However, what will be different this time are the types of homes demanded by the significantly larger minority populations versus previous generations.

Although just 11 percent of the homes sold in 2016 were to multi-generational households, this is expected to increase due both to average larger family sizes among minority groups as well as multiple income streams to finance these purchases with traditional mortgage products.

For home sellers – who typically had lived in their homes for 10 years in 2016 – builders of new homes have a unique opportunity to capture their interest, especially since the most-cited reasons include a too-small home (18 percent), a desire to move closer to family and friends (15 percent) or a job relocation (14 percent).With a median net gain of over $43,000, that figure certainly makes a robust down payment for the next purchase.

November column for Builder & Developer magazine now online

My column for the November 2013 issue of Builder & Developer magazine is now posted online.

For this issue, entitled "GOP-Centered Building Industry Update," I wanted to tackle the question of why the building industry is so wedded financially to the Republican Party when (a) the favor is not necessarily returned; and (b) an increasingly diverse pool of new home buyers doesn't support the party's policies. It's a huge disconnect and a potential PR issue in the future.  An excerpt:

In the 2012 campaigns, just over three quarters of the NAHB’s BuildPac funds went to the GOP – far higher than the 55 percent from the National Association of Realtors or the 57 percent from the Mortgage Bankers Association. Looking ahead to the 2014 elections, while the GOP money lead from BuildPac has shrunk to 67 percent, it’s still far higher than the 48 percent planned by the NAR...

By 2043, the Census Bureau estimates that the country will no longer be a white-majority country, fueled today by significantly higher birth rates among multi-racial couples, Asians and Hispanic immigrants...

So why is this important? Because the GOP has a substantial image problem among minority voters, with just 11 percent of non-white voters declaring allegiance to the Republican party as of mid-2012. And when the NAHB’s primary PAC is still targeting two-thirds of its funds towards Republican candidates, it’s hard to ignore this huge political disconnect between supplier and buyer.

To read the entire column, click here.

To read the entire November 2013 issue in digital format, click here.

The future of homebuilding is -- spiritual?

Pollster John Zogby has some interesting advice for builders attending the Pacific Coast Builders' Conference in San Francisco this week: move away from marketing quantity in favor of quality of life. That's because there's a sea change among the American consumer that's expected to continue well beyond this recessionary cycle. From a BuilderOnline story:

Pollster John Zogby, speaking at this week's PCBC in San Francisco, argued that for a growing percentage of the population the American dream is defined by spiritual rather than materialist goals. His polls show that 46% of the American public defines the American dream by quality of life rather than quantity of possessions. Builders, he said, won't be able to "function properly" unless they get to know these buyers intimately, whether through market research or living among them...

Zogby outlined four pools of people who share this spiritual connection. A sizable portion of the population, he said, is now working for less. They have de-emphasized what they own or where they live to define themselves. "They are the new American consumer," he said, adding that these are smart consumers who will shop for bargains but save money to buy something nice they really want. It's a mistake to try to reach this group by marketing fantasy; reality is what appeals to them.

A second cohort of 9 to 10 million Americans has done very well in life, but it is now making a conscious decision to stop materialist behavior. They may decide not to do a 4,000 square foot addition because they aren't fully utilizing the 5,000 square foot home they already have. They don't want the hassle of owning even more. "There's a real movement toward simplification," Zogby said.

Aging baby boomers, 78 million strong, are a third source of secular spiritualism. Many who believe they changed the world when they were 19 are now looking for a second act as they turn 60. Zogby suggested that this generation, instead of looking forward to retirement, is searching for "encore living," a way to spend the remaining years of their life giving back to society through volunteer work and other endeavors.

The fourth group of spiritualists is inclined toward personal sacrifice. "One of the great untold stories of the last 25 years is the revolution in recycling," said Zogby, who did some of the early survey work with local governments that revealed a latent desire to recycle. "Americans are looking for the next wave of sacrifice," he said, suggesting that it will be in the area of sustainability. "We are citizens of the planet Earth."

Besides appealing to buyers looking for spiritual fulfillment, Zogby recommended that builders pay close attention to the behavior of Generation Y, which are 18- to 30-year-olds.

These are America's first global citizens, he said, citing polls that show 56% have a passport and travel abroad, and one fourth say they expect to live and work in a foreign country within their lifetime. This group communicates through social networks with friends from foreign countries. They follow international sports. They may marry people from foreign countries. They are a mobile group that wants to cluster in urban areas. They will have an average of four jobs before they turn 30.

"They may not want to live in the same place forever," said Zogby, arguing that this demographic will create new forms of shared homeownership to accommodate their mobile lifestyle.

NIMBYs and seniors manage best through recession

Want to know the demographic magic bullets to survive recessions? According to a story in the Economist, areas with a larger share of seniors and NIMBYs -- such as California's Central Coast (i.e., Santa Barbara), its coast north of the Bay Area and some inland counties -- ride out economic troughs better than areas with younger populations:

Nowhere in California is immune to recession, but the oldest areas are proving most resistant. Of the ten counties with the lowest unemployment rates, nine, including Santa Barbara, contain an above-average proportion of people aged 65 or older. Youthful Los Angeles has shed almost a quarter-of-a-million jobs in the past year. Slightly older San Diego has lost a few thousand, while considerably older San Francisco has lost none. A map of the state’s retirees (see above) could almost double as a map of economic resilience...

California’s youngest regions are in its hot interior. In the middle years of this decade hundreds of thousands of families moved there in search of big, affordable houses. Unfortunately, many took on big, unaffordable mortgages to do it...

Health care is the only private-sector industry in California that accounted for job growth in 2008. Here, too, places benefit from having a fairly old population. The median age of people admitted to Santa Barbara’s Cottage Hospital is 55—eight years older than UCLA Hospital in Los Angeles. Although hospitals complain it is too stingy, few sources of revenue are more stable than Medicare, which paid for 44% of Santa Barbara’s patients in 2008.

In the past ten years, obedient to the findings of urban sociologists, American cities have tripped over themselves vying for young, creative people. They have revitalised downtowns and sponsored gay-pride parades. They might have been better off building retirement homes.