Two questions bedevil home builders. They underlie every design program, every lot take-down, every discussion about accessing or putting capital in place, every marketing concept, every amenitization idea, and every sales call. Why bury the lead? The questions are these:
- Will GenY buy their first home?
- Will Baby Boomers buy their last home?
Together, they add up to upwards of 154 million people, both on the young end of the adult spectrum and toward the retirement end of career continuums. Simple, back of the envelope math converts the total roughly into 70 to 80 million households (see our related Macro Dissonant note today on household formations).
- Macro Dissonant:opposing forces in household formation, economic, and jobs data
- Commiserate and Consolidate: If you bid and lost on Weyerhaeuser and Shapell, what options remain open for "going big?"
- Buying, being bought, or going public
One home building company chief executive we know calls these two population segments "the barbell effect" challenge for home builders. Each cohort is the proverbial "pig in a python," an overly large population group about to travel through the next five to ten years of household-making behavior, reshaping each era as they arrive, and changing business models as they settle into their respective patterns.
For review, have a look at the Harvard Joint Center for Housing Studies recent observations about homeownership trends, which note anomalous patterns among homeownership rates by age group, probably most effected by aftershocks of recession and slow job growth.
Still, many economists point to structural slowdowns in median household income, which could be clobbering young folks' plans, along with student debt, along with the resumption of rising home prices.
Calculated Risk's Bill McBride has also looked at homeownership trends among varying age groups in hopes of divining whether their behavior reflected sensitivity to the cyclical economic downturn or something more structural that would be of concern to home builders.
Probably the most focused and helpful, although somewhat scary as well, work on the subject of whether (and when) young adults will buy their first home and whether (and when) older adults will buy their last one comes from Arthur C. Nelson, Ph.D., FAICP, Executive Director, Metropolitan Research Center, Director, Master of Real Estate Development at the University of Utah.
From a distance, it's easy to regard the questions as home building externalities, forces outside home building players' sphere of direct control, influence, or accountability. Wrong.
It may look like the decisions, preferences, and proclivities that could swing buying behavior by between 1 and 2 million decision-makers in the near term are the equivalent of waiting for a tide to change from receding to inbound. But home building businesses can not work that way. Rising tides may lift all ships, but there is nothing to say that the very low tide that has for six or seven years exposed home building's excess overhead capacity will suddenly come in and rise as a salubrious force.
Collectively, it's in both GenY's and Baby Boomers' interests to play a little harder to get than home building company strategists would like. This means, of course, there will be winners and losers.
Clearly, the winners will be ones who succeed first in nipping away at the margins of these huge populations, as it's the edges and influencers that will impact the group on a larger scale. Even in the heady period of about a year ago through about six months ago, nothing worked so effectively to spark urgency among potential buyers like prices.
Price tags that offer a community, a lifestyle, a set of living solutions and an interior live-ability experience, are going to win, both when the foe is inertia or resales, or another competitor's new product. The "barbell effect" will make or break home building companies, so if you haven't already, get your design, operations, land acquisition, and finance muscle-building programs going at full-speed by the time early 2014's Spring Buying Season comes around again.