From HW:
In the run up to the financial crisis, the country was riddled with bigger and better home designs, appealing to a particular taste that faded quickly, leaving the market with empty homes to fill.
While it’s true many still dream of that white-picket fence home with great neighbors and better schools in desirable locales with plenty of amenities, it’s clear all the potential homebuyers roaming today’s landscape are not the purchasers of yesteryear.
Despite what demographers tell you about the current population, the future homebuyer is far more particular and elusive than one might expect. In fact, the future is likely to be a playground for creative builders who reinvent older communities with smaller homes for single owners, retirees and smaller families.
While expectations for growing families may stay they same, it’s unlikely they will have the same level of critical mass. The aging baby boomers make up a large part of the American population. Based on the 2010 U.S. Census, those older than 45 account for 39% of the entire U.S. population. And the 25-to-44 cohort is 26% of the entire American population.
Wayne Yamano, vice president and director of research for John Burns Real Estate Consulting, recently said the homeownership rate will fall eight percentage points from 70% in 2005 to 62% in 2015. A report from PIMCO also said expectations for homebuying will change as generations carrying student loan debt and lower salaries wade through the marketplace.
The good news is a price correction is underway, paving a new path toward homeownership for those 22 to 34 years old. Home prices and mortgage interest rates are low, giving theses potential borrowers buying power not obtained in the decade leading up to the fallout.
The question is does the market contain the product they want?
Federal home programs, like the 203K program from HUD, tend to focus on lending that encourages the rehabilitation of aging homes. But there is nothing to suggest new buyers want fixer-uppers, especially in a market where supply outnumbers demand.
In fact, if there is one thing buyers learned in the crisis, it is to buy a home for life. That means they expect whatever they sink their money into to have staying power throughout a lifetime. Meeting all of these different demands is not easy, but it shows a mark for creativity.
It is the homebuilders who succeed in providing attractive product lines for these sub-groups that will capture the buying power of those once ignored.
There once was a time where people bought a small 1 story on a large lot and then added to that home as their needs changed. There’s all kinds of 1960′-1970’s built homes that have had major renovation. The problem that one has is that what do you do with it when you don’t want that big home and want to downsize. Hopefully you’ve found the correct desirable location that some move up buyer can afford and wants, but for some people looking to downsize they missed. They either moved up 1 more time in the past 10-15 years and they missed on location/desirability, or they didn’t keep up with maintenance/updating.
It does seem like a significant segment of the buyers are looking for the perfect move in ready house. They’ll pay the premium for in but they don’t want to bring $50-100K to fix a fixer upper.
Where can you find a house like that in the picture in a place like Carmel Valley? Good street setback, nice design (hate the SoCal stucco on everything).
4S Ranch has one development that has an appx 2100sqft one story, but who wants to live out there with the extra HOA+MR (at appx $600/month)?
I call bull on that one.
When the economy finally ever gets back on tract, look for the mc-mansion to be back in vogue.
And elevators to be a popular upgrade in upscale neighborhoods.
Me: I’m with you. Good luck finding one. Have been searching all year.
What buyers WANT and what they need and/or can afford are two different things.
Older buyers MAY downsize or move to lower cost locations and buy more compact one story homes, although there is evidence a lot of the baby boomers are staying put for now. Younger buyers will flock to the big two story homes with space for kids and stuff. They cost less to build per square foot and require less land. If the younger buyers can afford good schools and close-in locations, they will buy there, but many will trade location for space, design and new or newer homes.
The upper middle class professional types will continue to compete for the best locations and houses available in their markets. Better schools, more amenities and lower crime will continue to sell Carmel Valley and similar areas everywhere.
Once the market shakes out and appreciation returns, the move up cycle will reappear. The “buy what you can afford and trade up as your income increases” plan will be back. Purchases may be delayed or the prices may not fully recover for years because of the high debt loads and lower wages, but the desire to improve one’s housing situation is always there. It’s a very high priority for folks with kids.
Finally, if you want to know what the trends will be for the next five or ten years, don’t ask an economist or a housing analyst. Ask the builders what they are building and where. Educated speculation can’t hold a candle to being willing to put your money on the line.
Jim, thoughts on Civita in Mission Valley?
Looks pretty good on paper, mixed use, walkable, higher density urban infill project.
When the economy finally ever gets back on tract
Cute pun, but I’m glad you qualified the statement with “ever”.
There is a significant portion of the population that moves around and they will think that they need different size houses at various stages of their lives. I doubt that that will change. I have moved ten times (rented and owned) in the last forty years and am in the mood for less house to care for. But it has to be the right house or condo in the right location. However, my spouse is not ready yet for another change.
Hi Jiji
I was reading that cycles repeat themselves every fourth generation(80 years). If we work through the scenarios
At what age did the average home owner buy their biggest house in their largest income earning years? I read somewhere it was age 48.
Now during this cycle if 39% of the population is aging past the need for the biggest house and if 26% of the population is aging into the biggest house during a generation change of “Crisis dominating society” what do we have in store for the mcmansions
According to the book “The Fourth Turning”, modern history repeats itself every four generations; approximately 80-90 years. The authors of the book mention that the four-cycles always come in the same order. The first one, the High cycle, occurs when a new order or human expansion is developed, replacing the older one. The next cycle is called the Awakening. More spiritual than the previous, this is a time of rebellion against the already established order. The third cycle is known as the Unraveling, when elements of individualism and fragmentation take over society, developing a troubled era which leads directly to the Fourth Turning, an era of crisis dominating society during which a redefinition of its very structure, goals, and purposes is established.
Sound familiar?
Now if 26% of the population is heading into the depression baby(Crisis dominators) again here is what what do we have in store
Anyone old enough to be born in the 20s or early 30’s or have a parent that was a Depression baby. The phrase from my mother was “The eat everything on your plate” generation. Save Save and save for a rainy day