The Next Generation(s) of Home Buyers

By 2010, over 40 percent of households will be headed by at least one person over the age of 55. The number of U.S. residents over the age of 65 years will jump from approximately 38 million today to nearly 70 million by 2030. These facts make a strong case for continued targeting of the ubiquitous Baby Boomer. But active adult communities and retirement products will not appeal to the market segments that are coming up behind them. The absence of long-term planning has become a housing industry boondoggle as the focus has always been on a “bird in the hand.” But the evolution of our community development strategies to accommodate the up and coming market segments and sell beyond the immediate demand is critical to the continued success of the housing industry and our ability to be flexible in difficult market conditions. 

The Future: By 2030, 29 percent of all U.S. households are expected to comprise a single person. Further, traditional households (married couples with children) will represent just 65 percent of all households compared to 90 percent in 1950.

But who are the forthcoming buyers; what does their demographic profile look like; and how do we reach them? Loosely defined, Gen-Xers were born between 1965 and 1984 putting their ages between 24 and 43. Dependent upon the method of calculation, experts estimate their numbers between 50 and 70 million. Based on accepted definitions, the Gen-Y segment overlaps somewhat with birth years ranging from 1982 to 1995 putting the youngest at 13 years and the eldest at 26. This segment is estimated to comprise some 80 million people, even larger than the Baby Boomer generation. Over the next ten years, the youngest of the Gen-X crowd, who are now focused on entry level products, will be in the move-up phase and the leading edge of this segment, which is already beginning to move up, will be in that lucrative 46 to 54 group, focused on second homes and pre-retirement purchases as they enjoy their peak earning years. Simultaneously, the leading edge of Gen-Yers will begin to seek move up housing products. The personalities and propensities of these significant market segments will carry developers and home builders through the next three decades.

Gen-X is notoriously difficult to target. They are tech savvy, entrepreneurial, and vociferously independent and skeptical. They have experienced the deindustrialization of the Western World, economic recession, off-shoring and outsourcing, and many have found themselves overeducated and underemployed. In spite of these economic struggles, they are, for the most part, financially sound, having developed sophisticated investment strategies fresh out of college. But they do not mimic their parents’ tenacity for spending, rejecting the habits and values of the preceding generation as self-centered, fickle and impractical.

Generation Y is the largest U.S. age group since the Baby Boom generation. Also known as Echo Boomers, they were born with credit cards and stock options in their toy boxes and life without Google, virtual real estate tours and reality real estate shows is unthinkable with respect to the purchase decision. This group is diverse – one in three is non-Caucasian; one in four is from a single parent household, and three in four have working mothers. They buy young, on average at age 26, a full three years earlier than most Gen-Xers. According to U.S. Census Bureau data, the homeownership rate among those younger than 35 years of age had grown to nearly 45 percent in 2006, up from 35 percent in 1990. While Gen Y is clearly not responsible for the historic trend, experts anticipate that the under-35 buyer segment will surge as Generation Y enters adulthood. A few caveats: These impatient younger buyers have been heavily programmed and complain of slow response time and an inability on the part of real estate practitioners to embrace digital means of communication. And while they seek advice from their parents with regard to investment opportunities, they resent being treated like children. 

Thinking Outside the Box - More than a million new households are formed annually with most being adult children leaving home. These new buyers are a challenge. While golf continues to be a driver for active adult community development, the younger generations want a variety of recreation. If they choose to live in exurban areas, they want exurban activities. Charlottesville, VA-based Equestrian Services LLC is currently designing ten equestrian-themed communities and has another ten in the pipeline. Fractional ownership opportunities in ski environs are proliferating and serving to encourage second home ownership at a relatively tender age. Introduction into established golf environments doesn’t have to focus on golf. The Cliffs Communities “Carolina Preserve Initiative” is a fine example of thinking outside the box. The multi-organizational program focuses on utilizing the region’s wealth of natural resources to integrate wellness into the lives of their residents and their families. Teaching KATE, (Teaching Kids About the Environment) is a hands-on learning program that gets children outdoors to learn about ecology, wildlife resources, and forestry. And politically correct devices are increasingly popping up: Everything from wind turbine power to community gardens and green markets are becoming demand protagonists. The planned 300-home Ameya Preserve in Paradise Valley, Montana has signed up Alice Waters, noted Bay Area restaurateur who advocates organic and local food distribution and established a Berkley public school program to improve children’s diets, to develop an upscale on-site restaurant and culinary school.       

-Judith She`

We recently had the displeasure of reading an e-newsletter from one of the mainstream industry trade publications dedicated to the decreased revenues experienced by several of the “big” builders. Not only was it distasteful in its monopolistic content, it was misleading. By ignoring the fact that past periods of record sales and revenues would serve to balance the builders’ current discomfort, the Chicken Little syndrome becomes pervasive. We believe this form of journalism does a disservice to both the builders and the readers.

Unless they are completely devoid of business experience, today’s builders are keenly aware that real estate, similar to the stock market (albeit less volatile) is cyclical. It ebbs, it flows; it’s high, it’s low; it’s good, it’s bad. Our most recent real estate “up” cycle has lasted a significant period of time -- approximately ten years. Housing activity has virtually increased each and every year between 1995 and 2006 as prices have continued to escalate, suggesting consistent profitability. The down side to this is a given, and if builders were caught off-guard at the peak, after a ten year run-up, then they are, in fact, guilty of poor strategic planning.

We also take exception to builders being solely blamed for the lack of affordable housing. In recent years, builders have paid more for land, materials and labor. To add to the cost increases, municipalities have ridden the recent wave by imposing additional and/or boosting existing impact fees. Clearly prices must rise to meet the challenges and compromises need to be made on all sides. One approach may be to address zoning issues placing density and clustering as agenda items at the municipal level. Further, while a portion of the escalating home value conundrum is due to builder-related issues, we all know the role investors have played in the process -- a role that has ultimately spurred home owners to resort to avarice resulting in inundating various markets with standing inventory.

Suffice it to say, the problem is multi-faceted, and it has all happened before. The products have varied, but the circumstances have been similar – with a few exceptions. 1) Our job market is currently stable, performing at below historical unemployment levels; 2) Interest rates remain low and stable, hovering around 6.0% compared to 8.25% in 1995 when the boom began; and 3) While builders complain that a certain percentage of contracts are being cancelled, they will put nearly a million houses on the ground in 2007.

With the fundamentals in place, there are signs of improvement and success stories are prevalent in a variety of markets – particularly those with good job growth and compelling standards of living. Sales strength comes largely from target marketing and in this regard, the active adult segment reigns supreme currently. People over the age of 50 control 80% of savings and loan assets and 66% of all stock market shares. The affluent portion of the Boomer generation tends to be even more productive with respect to particular development genres. The U.S. Census Bureau reports that the number of households headed by an individual within the prime home-buying ages of 45 and 74 and earning in excess of $100,000 annually will increase nearly 3.5 million or 33% by 2012. This market segment currently accounts for more than 10.5 million households and is particularly productive with respect to second and vacation home products; approximately 20% own at least two homes.

Investment-oriented vacation ownership will continue to be a hot ticket for the foreseeable future as products in resort and cosmopolitan destinations appeal to end-users and investors alike. More than 1.6 million U.S. homes were purchased by investors last year and while U.S. Boomers account for the lion’s share, foreign buyers seeking a vacation alternative were responsible for a significant portion of the absorption. According to the NAR, nearly one in five Realtors has sold a home to an international client in the past year. While the largest percentage (33%) of foreign buyers comes from Europe, Asia accounts for 25% and Mexico, 13%.

Judith She`, Managing Editor

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