Optimism pervaded at last week’s “Economic and Market Forecast for the 50+ Housing Industry” webinar, despite reports from builders that conditions in the active adult market continue to be far from “good.”
The NAHB’s 55+ Housing Market Index survey, which asks builders of active adult projects to rate conditions as “good,” “fair,” or “poor,” dropped to a reading of 16 in the first quarter of 2011, down from 19 the year before. The component measuring present sales has dropped to 14, from 17 during the first quarter of 2010.
On the index’s scale of one to 100, it would take a reading of 50 to break even between builders who rate conditions as “good” and those who rate them as “poor,” and 16 is a long way from the break-even point.
Condo sales for the 55+ market were particularly bleak. The NAHB’s index of the 55+ new condo market stood at a reading of 9 in the first quarter of this year, with the component measuring current sales at a reading of 10.
Financing also is difficult to come by for builders across the board, those of active adult communities included. NAHB surveys of builders have overwhelmingly indicated that financing for projects continues to get harder. In a survey taken during the fourth quarter of 2010, 77% of builder respondents indicated that banks were lowering the allowable loan-to-cost ratio, and 76% of respondents said that conditions had gotten "worse" in terms of the number of new loans being made.
But the presenters were looking forward and, overall, felt good about what they saw. “The industry should be very optimistic about this sector going forward,” said Peter Dennehy, vice president at John Burns Real Estate Consulting and one of the two presenters.
Paul Emrath, vice president of survey and housing policy research at the NAHB and the webinar’s other presenter, pointed to expected growth in the active adult market in the coming years. According to the NAHB’s long-term forecast, households aged 55+ currently make up 40.2% of the total market. That percentage is expected to grow to 42% by 2014 and then to 44.8% by 2019.
And while many potential buyers struggle to find financing, Emrath points out that only 42.7% of buyers of age-qualified communities take out a mortgage, according to the 2009 American Housing Survey conducted by the Census Bureau and HUD. Although 54.6% of buyers in these communities count on the sale of a previous home to finance the down payment on their new home, that number has been dropping and is down significantly from 2005, when 100% of these buyers relied on the sale of an existing home, according to the survey.
In a recent John Burns survey, based on about 10,000 responses, 89% of Boomers said now is a good time to buy a home, and 55% of Boomers said that they will move when they retire.
Dennehy reports that “active adult projects in many markets have actually bucked the market trend.” Last year, the No. 1 selling community on a list his company compiled of best-selling projects was an active adult community, and he said many of the other projects at the top of the list made it there because they had an active adult component.
“We’ve done some research that shows that active adult projects are some of the best performing projects in the nation,” Dennehy said. “They’ve held value better versus other primary projects, and they’ve outsold them.”
Plus, he pointed out, the customer base is only going to grow: There are more than 10,000 new 60+ year olds every day.
Claire Easley is senior editor, online, for Builder.
Learn more about markets featured in this article: Greenville, SC.