Housing demographics and homebuilders: An overview
The first part in a series delving into what today’s shifting demographics mean for homebuilders.
The U.S. is a land of diverse geography, culture, climate and economic activity. As a nation founded and settled by immigrants, the country has always had a dynamic population. Never has this been more true than today.
Indeed, the U.S. population in the early years of the 21st century is undergoing profound change with increased immigration, a huge age group entering retirement age, another generation in their prime home-buying years, large regional migrations and more. All of these factors will have a huge impact on home purchasing and selling habits and home buyers' design preferences — with major implications for residential developers.
- A massive home sell-off by retiring baby boomers could spur a significant contraction in the home building industry.
- The existing supply of large-lot homes, mostly located in the suburbs, may already be sufficient to meet needs through 2025 in many parts of the nation.
- Recent immigrants will be a significant force in the home buying market.
- Single women will be increasingly active in the home buying market.
- Though those over age 65 buy fewer homes than younger people, the enormous size of the baby boom generation means that senior citizens will be a major home buying group and could very well be a prime market for new construction.
This three-part series examines changing U.S. demographics and the ramifications for home ownership patterns and purchasing habits. Part one provides an overview of trends of demographics. Part two looks in depth at the characteristics of different demographic groups pertaining to home ownership. Part three analyzes how changing demographics will impact home building over the next couple of decades.
Minority growth might be uneven, but it's significant across the U.S., as this chart shows.
The next two decades are shaping up to bring drastic changes in the U.S. population. We will be growing older, becoming more ethnically diverse, continuing to migrate in large numbers to the Sunbelt and have more female head-of-households.
The U.S. population can be divided into many groups; for the purpose of analyzing the future home buying market, however, we'll pay attention to these key groups:
- Baby Boomers
- Generations X and Y
The baby boom generation is typically defined as those born between 1946 and 1964. Following the Great Depression and the sacrifices of World War II, enormous pent up demand for young adults to start families was unleashed. By the end of the 1940s, about 32 million babies had been born in the decade, compared with 24 Million in the 1930s. In 1954, annual births first topped four million and did not drop below that figure until 1965, when four out of 10 Americans were under the age of 20. This post-World War II generation, some 80 million strong, comprises nearly 28 percent of the U.S. adult population.
In 2011, the first baby boomers will reach the traditional retirement age of 65. Many will see their children leave the home for good over the next couple of decades. Retirement and the empty nest are typically signals that prompt many to sell their primary residence and downsize to a more affordable home or move to a warm-weather retirement area. Every time the baby boomers go through a life transition phase, it has a huge impact on the economy, including the housing industry. This transition will be just as profound.
Generation X is the name marketers and demographers have adopted to identify those born between 1965 and, roughly, 1980. The 48 million born during this period make up the baby bust that followed the baby boom and comprise about 22 percent of the adult population.
Now in their 30s and early 40s, Generation Xers have moved into full-fledged adulthood, with 53 percent of them now parents, according to the U.S. Census Bureau. The birth rate for Generation X is 15 percent less than it was for baby boomers, but immigration is making up for some of the lower birth rate, says James Chung, president of Reach Advisors, a marketing strategy and research firm based in New York. For the next decade, Generation Xers will be a notable group because they are entering their prime home trade-up years, age 35 to 42, Chung says, adding that this generation now buys 51 percent of newly constructed homes.
Born between 1980 and 1995, this generation is also termed millenials or echo boomers, as they are primarily the offspring of baby boomers. The actual Echo Boom was a five-year span between 1989 and 1993, when for the first time since 1964 the number of births in the U.S. surpassed 4 million. This group, the second largest after the baby boomers, is just coming into its own as an adult consumer force.
"Although Generation Y isn't always considered a viable marketing prospect, as they continue to age, within the next five years they'll be flooding the home ownership market and are a force of about 74 million," says Steven Kleber, president of Kleber and Associates, an Atlanta-based marketing consultant specializing in the home building industry.
Members of Generation Y may earn more than their parents did at a comparable age, but their money doesn't stretch as far. Costs for basics such as housing, insurance and education have escalated as average income growth for the middle class has slowed. The result is that many in this generation feel less economically secure than their parents did. This is likely to affect their home buying and ownership goals and attitudes.
There's every reason to believe that women will continue to grow as a home buying force. Generation X women are 70 percent more likely than early boomer women to have a college degree, Chung says. They are also likely to marry and have kids later, making them more likely to purchase a home while they are still single.
Women are becoming head of households and primary home-buying decision-makers, either as singles or divorcees, in increasing numbers. What's more, single women own almost twice as many homes as single men, Kleber finds. These are sound reasons to study and cater to women as a separate home buying market.
Women's incomes over the past three decades have increased 63 percent, while men's median income has barely budged, according to ReachWomen, a marketing consulting firm that advises clients on the behavior of women as consumers. In addition, having longer average life-spans than men, women frequently outlive their husbands. As a result, by 2010, two-thirds of all private wealth in the U.S. will rest in women's hands, according to "Generations at Work: Managing the Clash of Veterans, Boomers, Xers, and Nexters in Your Workplace," a book released by the American Management Association.
Immigration rates, legal and illegal, have shot up in the past couple of decades and account for a significant share of U.S. population growth. New immigrants net household growth in the future will likely match that of 1995 to 2005 — a third, according to the report "State of the Nation's Housing 2007" by the Joint Center for Housing Studies at Harvard University. "Overall immigration is on course to hit a record-setting 12 million between 2005 and 2015," the report says. "The children of immigrants born in the United States will also add significantly to household growth. As a result, the foreign born are increasingly vital to the housing market, representing some 14 percent of recent home buyers and 18 percent of renters in 2005."
Hispanics comprise the largest immigrant group. The Hispanic population now stands at 46 million, or 15 percent of the total U.S. population, and is projected to rise to 54.7 million by 2012, when it will be 17 percent of the total population, according to the Harvard study. Many of these immigrants are not fluent in English.
"There are a skyrocketing number of individuals in the U.S. who have limited English proficiency, and an even greater number that live in households where no English is spoken, or it's not spoken very well," Kleber says. "The U.S. Census Bureau calls these households 'linguistically isolated' and the number of people living in them has increased dramatically in recent years to nearly 12 million people."
Asians are another notable immigration force. The estimated number of U.S. residents in July 2005 who said they were Asian or Asian in combination with one or more other races was 14.4 million. This group comprised 5 percent of the total population. By 2050, the U.S. Census Bureau estimates the Asian American population is estimated to be 33.4 million, which would represent 8 percent of the total U.S. population. As a group, Asian Americans are well-educated, with a median household income of $61,094 in 2005 — the highest median income of all races.
In part two, we'll delve deeper into the characteristics of these groups and how they will impact the residential construction market.