What You Should Watch in Changing Housing Demographics
Our second of a three-part series examines the characteristics of the population homebuilders will be selling to.
In part one of this series, we examined several key demographic groups that will profoundly influence the home building industry over the next two decades. But what are the characteristics of those groups? In part two, we delve deeper to assess their future housing needs.
Due to its sheer size, the baby boomer generation has had a major impact on the housing and construction industries as it passed through different life stages. Just as this enormous demographic group prompted a school-construction frenzy during its youth, a
boom in retirement communities, assisted living facilities and condominium construction in popular retirement areas is inevitable as boomers enter their golden years. Plus, many baby boomers will put their current homes on the market over the next two decades as they implement their retirement plans.
"After 2010, the leading edge of the boomers will pass age 65, and growth among the elderly population will substantially exceed that of younger adults, an unprecedented social and economic development," according to "Aging Baby Boomers and the Generational Housing Bubble: Foresight and Mitigation of an Epic Transition," a report by Dowell Myers and SungHo Ryu of the School of Policy, Planning, and Development at the University of Southern California. "This is best seen in the ratio of those aged 65 and older to working-age adults (aged 25 to 64). After decades of relative stability, this ratio will surge 30 percent in the 2010s and a further 29 percent in the 2020s, altering the balance to which we have long been accustomed."
The result will be a significant increase in the number of older home-sellers relative to younger home-buyers, though the impact will have wide regional variations. "For example, from 2010 to 2030, the ratio of seniors to younger adults is expected to rise 59 percent in New Jersey, 64 percent in Ohio, 66.4 percent in California, and 82.4 percent in Arizona, a magnet for retirement migration," the report says.
"We expect that this change will make many more homes available for sale than there are buyers for them," Myers says. A glut of baby boomer homes coming onto the market will be readily apparent after 2015, according to Myers, and will be felt especially in outer ring suburbs among homes built between the 1980s and the 2000s.
"Sellers of existing homes provide 85 percent of the annual supply of homes sold, and home sales are driven by the aging of the population since seniors are net home sellers," Myers says. He
notes that the decisions of existing homeowners thrive on personal, financial, community and life-cycle factors. These decisions could "flood the market with excess supply without regard to demand."
Due to the disparity in the size of generations, many aging baby boomers are likely to have a dearth of potential buyers for their homes. This trend could cause deflation in home prices and reduce demand for new home construction in areas where there is an oversupply of homes for sale.
There is some good news for construction companies, however, as baby boomers may defy one historic trend. Fewer boomers may downsize than members of older generations at similar ages, according to the report "State of the Nation's Housing 2007" by the Joint Center for Housing Studies at Harvard University. "A recent National Association of Realtors survey of baby boomers confirms this trend, with 15 percent of likely movers planning to relocate because they need larger homes and another 13 percent because they can afford to trade up," the JCHS report says. "Only five percent plan to move to smaller homes."
Says Myers: "The baby boomers who choose to remain in their homes will become an increasingly important source of demand for remodeling projects intended to help them age in place."
Culturally, Generation Xers were marked when they were in their 20s by a lack of optimism for the future, their cynicism and their distrust in traditional values and institutions. There has also been some resentment among Generation Xers over boomers' cultural dominance. In the housing market, the boomer generation's larger size has contributed to what Myers calls a generational housing bubble that has driven up home prices due to decades of strong demand from boomers.
The result: Generation Xers faced high home prices when they entered the home buying market. However, this bubble may well deflate over the next 10–20 years.
"The ratio of seniors to working-age residents will increase by 67 percent over the next two decades; thus we anticipate the end of a generational housing bubble," Myers says. "When people enter their late-50s and early-60s, as the leading edge of the baby boom generation has now done, buying and selling are in balance. Among individuals in their mid-60s, sellers come to outnumber buyers [and then] selling dominates among those in their 70s and beyond."
Housing value deflation will not please boomers, but it will be just the prescription for some Generation Xers and Yers when they are ready to purchase their first home. "Younger generations face an affordability barrier created by the recent housing price boom," Myers says. The affordability burden on young buyers and potentially the continuation of more stringent mortgage options after the subprime meltdown could exacerbate home price declines. "Once past the tipping point, market adjustments will cascade in virtually every community, as the ratio of seniors to working-age adults will increase for the greater part of two decades," Myers says.
"If prices fall, we also expect home builders to scale back on construction, reducing the growth in supply," Myers says. "The question is whether these adjustments will be sufficient to cushion the baby boomer sell-off."
While in many ways women embraced the gains of the Feminist Movement decades ago, in the home buying market, the full force of equality will likely be felt over the next two decades. With greater career opportunities, more education, a shrinking wage gap and higher divorce rates than in their grandparents' generation, adult women — particularly Generation Xers and Yers — over the next couple of decades will have the opportunity to be unmarried homeowners in larger numbers than ever before.
Though many women will be home buyers following a divorce, a sizable number will buy homes and settle into their lives before finding a husband, according to James Chung, president of Reach Advisors, a marketing strategy and research firm based in New York. Some will choose to be single mothers without a partner. This generation of single women is savvy about investments and real-estate, Chung says, and is not afraid to take on the responsibilities of home ownership while single.
Kleber & Associates, an Atlanta-based marketing and communications firm, has researched the attitudes of well-educated women home decision-makers, both married and unmarried. The firm calls these women the chief purchasing officer, or CPO, of the home. The research shows that any lingering preconceptions about women as being naïve about major purchasing decisions are outdated.
"The CPO, regardless of age, is confident, skilled and measured in her decision-making ability," says Steven Kleber, founder and president of Kleber & Associates. "She understands that receiving input about her decisions is vital, and she often relies on advice or input from someone important to her. The CPO is an experienced negotiator and uses her skills effectively to obtain the best possible deal."
Generation Y women are the only significantly growing home-buying demographic group today, Chung says. This is largely due to this group's increasing education level, which leads to greater purchasing power. "Generation Y women in terms of education are clocking the guys," Chung says. Women in their 20s are making equal to or 120 percent of the wages of men of the same age in areas where there is a largely educated population, he says.
As a result, Generation Y women are more likely to buy homes while single than previous generations of women. "Their parents are huge believers in home buying, and for that matter, are subsidizing those purchases," Chung adds.
With the white, native population in the U.S. growing only slowly, much of the nation's population growth is due to immigration. Recent immigrants and their children will buy even more new homes over the next couple of decades.
More than one-third of the growth in the number of American households is due to growth in the immigrant population. Although still concentrated in a handful of gateway metros, immigrant
households are beginning to settle in suburban and rural areas in even more areas of the country.
With most immigrants settling in urban areas, they will be key buyers of a large block of existing housing stock. "Between 2005 and 2015, the number of pre-baby boom, primarily white households will fall by about 11 million," the Harvard study says.
"As a result, the homes they currently occupy — including millions of modest houses built in the inner suburbs during the 1950s, 1960s and 1970s — will come onto the market. This huge turnover of homes will open new opportunities for younger and more racially and ethnically diverse households to live close to city centers."
Urban infill projects will also appeal to Latinos and other ethnic groups. Latinos are the largest and fastest-growing ethnic group, with an estimated $700 billion in spending power, according to Kleber. Developers who want to target this market will have to take into account language barriers
because a sizable portion of potential Latino home buyers are not fluent in English. Latinos also have some unique desires related to home design, particularly in kitchen and dining areas.
Asians are another key immigrant and ethnic group. This demographic group, while not as sizable as Latinos, is on the whole the best-educated and wealthiest ethnic group, data shows. Forty-nine percent of Asians age 25 and older have a bachelor's degree or higher degree, according to www.asian-nation.org. For the most part, the Asian community's tastes in home design are similar to those of the general population.
Stay tuned for Part III of this series, where we'll examine the particulars of Asian and Hispanic tastes in home design, along with those of other demographic groups.