The housing food chain starts with entry-level buyers, and as the U.S. economy stumbles toward recovery, builders are hopeful that Gen Y has a strong appetite.
It certainly has the sheer numbers to make a dent in the buffet. Born between 1977 and 1995, the nation’s 70+ million “echo boomers” rival the baby boomer generation in size. And, like their parents, they are rewriting many cultural rules.
“Gen Y has demonstrated different values, aspirations, and behaviors through every life stage,” James Chung, president of Reach Advisors, noted at an April 20 Real Estate Trends conference in Washington, DC hosted by the Urban Land Institute. “This is the generation that took down the music industry and supplied the swing vote that elected the president. They are dramatically changing consumer markets.”
Now they’re entering those formative years when young adults typically start applying for mortgages, and there's no shortage of research and speculation on what they want in a home. Studies confirm that echo boomers are more eco-minded, urban, ethnically diverse, and technologically literate than previous generations--preferences that will no doubt affect their housing choices.
If they can buy a house, that is. The more imminent question, which Chung and market researcher Brooke Warrick of American LIVES, debated during a session on “The New Consumer Mindset,” is whether or not Gen Y will have the post-meltdown earning potential to make the jump from rental to homeownership. Many would-be buyers who were counting on down-payment assistance from mom and dad saw that well dry up and their parents’ nest eggs diminished when Wall Street tanked in 2008.
Others never had the cushion to begin with. First-generation children of immigrants, who make up a sizable percentage of the echo boomer/millennial cohort, tend to fall on the lower end of the income scale, Chung noted. Now credit is tighter, U.S. manufacturing jobs have all but evaporated, and most jobs that support a middle-class lifestyle require a college degree.
Gen Y employment prospects (and therefore buying power) may be further constrained by the fact that boomers are postponing retirement and lingering in the workforce longer than expected, causing stagnation and even backflow on the corporate ladder, Warrick hypothesized. “That natural lift in jobs might not happen now because boomers won’t be vacating jobs that might otherwise be filled by younger generations,” he said.
Still, the lower end of the housing market is showing signs of life. And where echo boomers are concerned, builders are likely to see one key difference in entry-level buyers over generations past: they are more likely to be women than men. This may well be a tipping point for the home building industry, not to mention the nation.
Gen Y women are earning college degrees at a higher rate than their male counterparts, Chung explained, and while the average American woman who works full-time still earns 79 cents for every dollar earned by a man, the gender gap is narrowing. “In cities with knowledge-based economies like Washington, DC, women earn 107% of what men earn,” he said. “They have changed the income dynamic.”
Warrick, whose ongoing research tracks new home buyer preferences, said that among single women and young couples, demand is up for energy-efficient homes with flexible floor plans in the 1,300-square-foot ballpark. But it's not just about the house. The most desirable homes are in tight-knit communities with shared gathering places such as coffee shops, grocery stores, and dog parks.
Will the echo boomers fulfill the prophecy of an urban renaissance? Wait and see.
"Reuse will be an important topic over the next year or two," Warrick said, noting that the current emphasis on infill redevelopment will likely continue.
But in the end, housing choices boil down to affordability and need. “The desire for urbanism is something we saw mirrored in Gen X also,” Chung observed. “The projections were that they would stay urban, but the reality is that they didn’t have the income capacity to support private schools, and most cities don’t have good public schools. The long-term implication is that the suburbs start to look different to buyers as they enter their move-up years, and Gen Y will eventually have kids. Down the road, decisions about where to build may still be based on the quality of the schools in a given local market.”
Jenny Sullivan is a senior editor for BUILDER.
Learn more about markets featured in this article: Washington, DC.