Following the Population
Following the population is not only important to homebuilders, but is also invaluable to our nation as our diverse generations impact every part of the world from lifestyle to economic trends.
According to the U.S. Census Bureau, the number of children born each year has increased sharply more than two decades from around the 1980s. Today, we (homebuilders) are watching the 78 million Baby Boomers (born 1946 to 1964) and the 81 million “Echo Boomers” or Generation Y or Millennials (born from 1982 to 2001).
Why is it so important to watch these two generations when it comes to homebuilding?
This year, the Baby Boomers’ age range is between 46 to 65, which means this generation is in the pre-retirement stage or empty nesting, which is why they are looking for active adult communities. This is a time in their lives where they are ready to downsize but still want to have fun and travel. Most likely, they will sell their large home and purchase a smaller home located within walking distance to parks, restaurants, shopping centers, and cultural and community services. Or these Baby Boomers may purchase a vacation home or a “test” retirement home located in key areas that tailor to retirees.
In the same way that the Baby Boomers dominated the national landscape, the Echo Boomers are going to make news for years to come. In terms of home purchasing, this generation is just now starting to buy their first home.
These young professionals desire a social, urban lifestyle and are willing to give up prized home features to live closer to work and other amenities. According to the research firm RCLCO, two-thirds of Echo Boomers respondents say living in a walkable community is important to them. More than half would trade lot size for proximity to shopping or work and a third will pay more for this walkability.
Due to the uncertain economy and our recently real estate crash, the Echo Boomer is slower to buy but as rents go up and tax returns remain high, this generation will become our first time homebuyer.
A recent RCLCO study indicates that Echo Boomers are more ethnically diverse than previous generations and welcome diversity in all aspect of their lives. For example, the study states that 73% of the population (from 2010 to 2020) will be non-white. This is important to homebuilders in terms of home design as this ethnic group has different cultural values. For example, this group is used to density and may want to be close to transportation services like a metro station. Also, it’s important to design a separate bedroom suite for extended stays and build larger models as purchasing a home becomes a family or group decision.
No matter which generation we are watching, we will be ready to offer the “perfect” first home or the “dream” retirement community.
By Michael M.
A Nation of Renters? Not Likely.
I was a speaker at the 2011 PCBC in San Francisco last summer, attended several panels and spoke to a lot of my colleagues in the building industry. Almost everyone I spoke to at this conference considered themselves survivors: We’ve made it through this. We’re going to come out the other side and be okay in the end. The reality in 2011 is that things are not as good as we had hoped they would be, but instead of analyzing the past and swapping war stories about the housing crash, the predominant theme was “Where do we go from here?”
Everyone had ideas – some of them were even good ones – but the most surprising thing I heard from many speakers on different panels was that we have become a nation of renters. They see a trend away from home ownership toward rentals that will last not just years, but decades, if not forever. They cite a shift in lifestyles, distrust of home values and changing demographics. They predict that owning a home will no longer be part of the typical American Dream.
I think they are wrong. To look at what is happening today and assume it will continue indefinitely is myopic and short-sighted. The drop in home ownership – accompanied by the rise in rental demand – is all part of the real estate cycle and it will change. Today, more people are living in apartments because rents are cheap and homes are not appreciating. As soon as the jobs come back and consumer confidence returns, people are going to start to unbundle. There are millions of people living with people they don’t really want to live with: kids living with parents, parents living with kids, young professionals tired of having roommates.
Once they start to move out and get their own place – even an apartment – that is going to put pressure on rental vacancies, which will push up rents. When the cost of renting is no longer such a good deal, especially considering the tax benefits of owning, they’ll start to reconsider. Once home values begin to recover and their friends are talking about how their house is now worth 20 percent more than when they bought it, those “long-term renters” are going to move back towards ownership. Despite the risk of another down cycle, most people in America would prefer to own a home where they can make changes and stay as long as they want, rather than be at the mercy of a property owner.
The question is how long will it take for the cycle to play out? I think we’re already starting to see the first stage of the recovery in core areas, especially markets like the San Francisco Bay area, which is gaining jobs and already experiencing lower vacancies and an increase in rents. Last year at PCBC everyone was saying the recovery was 18 months out; this year they said the same thing. But I am confident about one thing – the housing market won’t stay down forever.
By Michael M.