According to the Urban Land Institute’s report “Emerging Trends in Real Estate 2015,” the combined impact of millennials and aging boomers—all 160 million of them—will have a significant impact on the housing market for years to come.
Let’s put that prediction into context…
Zillow estimates that by the end of 2015, millennials (aka “Generation Y”) under the age of 35—born between 1980 – 2000—will overtake the Generation Xers—children of the boomers, between the ages of 35-50—to become the largest group of homebuyers in the U.S. And according to a recent report released by the Joint Center for Housing Studies of Harvard University, millennials will form 24 million new households from 2015 to 2025. Wow!
SOURCE: 2015 National Association of Realtors, “Home Buyer and Seller Generational Trends”
And because the median age of the millennial generation is only 23, the economic buying power of this group is on the upswing. Millennials represent the largest share of first-time homebuyers, at 68%. But a tough credit climate—affecting buyers and builders alike—as well as a tight job market will be an obstacle for many of these young homebuyers.
Similarly, aging boomers will continue to influence the market as their housing needs change. According to the NAHB, the number of households headed by individuals 55 and older will comprise 45% of the total U.S. housing market by 2019. And currently, one in eight U.S. residents is 65 or older. This generation however, has stronger credit and more accumulated wealth, on average.
One of the most interesting housing trends created by these two demographic phenomena is the emergence of the multi-generational home. It turns out that a full 13% of all homebuyers purchased a multi-generational home last year to accommodate either aging parents on the one side or boomerang children on the other, according to the National Association of Realtors. A recent Pew research study concluded that 50 million Americans currently live in a multi-generational home—a 10% increase since 2007.
What Does This Mean For Builders?
If diversification is the key to weathering the ups and downs of markets, these demographic trends represent a perfect storm for homebuilders—growth at both ends of the spectrum.
Well-designed, entry-level “starter” homes for the emerging millennial market is a long-term growth segment for builders. The homes serving this segment, however, need to appeal to the demographic: practical, functional, homes which are small, energy-efficient, and driven by technology. And because this group is facing a tight credit and job market, marketing these homes to potential buyers based on monthly, fixed payments and low energy bills will appeal to their underlying financial concerns. Assistance with financing may be key to increasing closing rates.
While builders are waiting for the credit and job market to loosen in the millennial’s favor, focusing on the changing housing needs of the aging boomer generation makes good business sense.
Most aging boomers would prefer to “age in place” and are downsizing from McMansions. This group prefers an active lifestyle; will probably work well beyond retirement age in some capacity; craves freedom from excessive home maintenance; and will often move to be close to children and grandchildren. While single-family homes–which can incorporate universal design principles—are still plenty viable for seniors, today’s emergent senior developments have migrated and evolved from the traditional “golf course” design into a variety of options that offer a little something for everyone.
Finally, multi-generational home design can be tricky depending upon the zoning restrictions within each community. Simply creating a separate, private entrance or an attached guest suite that can be opened or closed depending upon the owner’s needs may offer a solution for all concerned.
The bottom line is this: Know your customer. Adapt to those changes. And try a new approach to creating a product that will meet the needs of a changing marketplace.