Week two of Spring Selling: May pace be with you.
Meanwhile, good news! You’re king or queen for a day, and your word is the world of home building, development, the product channel, investment, etc.’s command.
By your decree, what’s the one thing would you change from the way things are now?
Here’s the problem.
Sentier Research, which tracks household income trends, clocked in U.S. median household incomes at $63,517 for December 2018, sequentially not different than November, but up 2.7% from a year earlier, and up a whopping 15.4% from the latest low point just post Great Recession. [Hat tip here to New Strategist Press editorial director Cheryl Russell].
And that’s the rub. In times past, 100% of area median income would have made for a damned good customer for what many home builders could build for.
Thing is, now, Zillow research here notes that one out of three home buyers takes home $100,000 in wages annually, and typical household earnings failed–big-time–to keep pace with rising home prices. Fewer than one in five buyers makes less than $50,000 a year, and only about 30%Using a slightly different time-horizon, Zillow economist Jeff Tucker brought home the point–bluntly–this way:
While they have soared 50 percent in the past seven years, household incomes have not kept up, rising just 11.3 percent in real terms ($53,921 to $60,000) from 2012 to 2017. The result is that the ratio of home values to incomes has increased from 2.96 in the third quarter of 2011 to 3.5 in the third quarter of 2018.
In other words, the value of a typical home raced ahead by more than half of an entire year’s median income. By this metric, home values have risen to income-adjusted levels last seen in 2008.
And here, National Association of Home Builders economics team’s Carmel Ford notes two key characteristics among recent home buyers that stand out:
- A typical home buyer was 40 years old, unchanged from the median age in 2015.
- Recent home buyers had a median household income of $86,623, up from a median of $78,739 in 2015.
Underlying these two raw statistical facts–one of which indicates that typical home buying households must earn 136% of median income to be in the game–lies one that tugs at the heartstrings of us all.
The top reasons why recent home buyers decided to move were to ‘move for a better home’ (55%), to ‘move for a better neighborhood’ (46%, and to ‘move to form a household’ (39%).
In other words, people need what you do.
However, anyone can do the math and see the problem.
Median household incomes are $63,517, while the median household income of a recent home buyer is more than $20K higher than that, and, per Zillow, 33% of home buyers make more than $100,000.
So, you’re king for a day. What would you change to close this gap, and make it so that households with 100% of AMI, or even 130% of AMI might find themselves within ballpark range of the kinds of products and communities you can develop and build and still stay in business?
Choose one of the following, and please speak up in the comments box below.
- a. “I would deign to eliminate all wasted cost and expense–accounting for ranges of 25% per unit of construction’s direct costs–not otherwise directly related to value creation for a home buyer, and to eradicate such costs via improved processes, systems, technology, and automation that would result in higher productivity construction value streams.”
- b. “I would deign to identify and erase all unnecessary, arbitrary, unjustifiable, and onerous regulatory fees, taxes, costs-in-delays, encumbrances, codes–accounting for between 15% to 35% of ultimate home prices and unit costs–and turn the captured money savings from the reduction and emancipation from such regulatory burden into lower asking prices and rents.”
- c. “Other decrees here.”
Once upon a time, not so long ago, people in households making median wages were well worth getting to know for home builders, residential developers, and investors, having a chance to inspire and motivate, and, perhaps, welcome them, at some well-calculated risk, into homeownership.
If you were king–or queen–for a day, what would you change to make it so one more time?
