4 Shifts Needed to Sell More Homes | John Burns Real Estate Consulting

4 Shifts Needed to Sell More Homes


As noted during our consulting team’s visits to thousands of communities all over the country last year, and also shown by the slower 2014 sales in our master-planned communities survey, the land development and home building industries need to shift their mix of communities to target a different mix of buyers than the traditional mix. New home community segmentation needs to change in four ways:

  1. Less move-up housing
  2. More luxury housing
  3. More retiree housing
  4. More entry-level buyer housing—but not yet

Less Move-Up Housing

Move-up buyers are traditionally 36–45 years old. Today, that means they were born in the 1970s. Here are a few facts about this group:

  • 18% fewer of them. 18% fewer people were born in the 1970s in the US than in the 1950s, which has been somewhat offset by a surge in immigration. This means that the US resale housing stock has more than enough homes designed for move-up buyers.
  • Insufficient equity. Many of those born in the 1970s bought their first home 10+/- years ago and thus are far less likely to have sufficient equity to move. They are also more likely to have gone through foreclosure, which has a marginally positive housing demand element to it, as some will return to homeownership soon. Not only are there fewer traditional move-up households, but a high percentage of them are unable to move.

Move-up housing success can be achieved in the right locations and with the right execution, but the total demand is much lower than usual. It just is not as easy. Our consultants have witnessed plenty of success, such as Line K in Virginia and La Vita in Irvine (both highlighted at www.DesignLens.com).

More Luxury Housing

Luxury homes, whether in urban or suburban environments, continue to outperform, and for very good reason:

  • Rise in affluence. The economic recovery has been fueled by low interest rates, which have increased the value of most assets—– stocks, bonds, homes, etc. This has heavily benefitted the rich, who are the primary owners of these assets.
  • More of them. Luxury home buying typically occurs when buyers reach their years of peak earning and net worth. The US currently has more people in this group, aged 46—60, than ever before, and they have more income (two careers) and less expenses (fewer kids) than any generation before them. Compared to prior generations, this group is loaded.

 

WSJ_OwnershipSociety_BMI

More Active Adult Housing

Eight million more people will turn 65 over the next 10 years than the last 10 years, and more of them than ever before plan to move, according to our Consumer Insights survey. This creates opportunities in all regions and at all price points, as the demand drivers are no longer solely golf courses in sunny states. Proximity to kids and grandkids, as well as entertainment, and health and wellness are just a few of the main success drivers we see over and over.

More Entry-Level Buyer Housing in Future Phases

The headlines about low entry-level buying activity mask the fact that entry-level buying is indeed already on the rise (we purchased this data for 166 MSAs) and will almost certainly increase steadily in the years the economy grows. Those born in the 1980s (currently 26–35) have delayed the need to buy a home by 3–5 years, creating pent-up demand. Consider that they are:

  • 10% higher in number than those born in the 1970s
  • Marrying 5 years later than their parents did
  • Having children 3 years later than their parents did
  • Struggling financially, since they entered the workforce in the worst economic downturn since the Great Depression and have more student loans than any generation before them

While entry-level buyers are financially challenged, the number of people is so large and the desire to own so high that many entry-level buyers will emerge over the next decade, especially if mortgage rates and down payment requirements stay low. While most will buy resale homes for affordability reasons, a small percentage of a large number will still translate to strong new home demand.

Conclusion

In summary, builders and developers should study their local market with an eye to building communities and homes for the following:

  1. Less move-up housing
  2. More luxury housing
  3. More active adult housing
  4. More entry-level buyer housing, but in future phases

The fastest growing economies, which tend to be in the south, will be where most of the opportunities abound.

 

 


John Burns If you have any questions, please contact John Burns at (949) 870-1210 or by email.

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