An interesting article came out warning about where the next housing crisis may come from. The Atlantic Cities site, has a post saying that the Baby Boomers are going to have a hard time finding buyers of their homes when they go to sell.
According to data from the American Housing Survey, from 1989 and 2009, 80 percent of new homes built in that era were detached single-family homes. A third of them were larger than 2,500 square feet. And most startling – “I checked my numbers over and over again,” a bemused Nelson says – 40 percent were built on lots of half an acre to 10 acres in size. Now, he says, 74 percent of new housing demand will come from the people who bought these homes, now empty-nesters, wanting to downsize. via the Atlantic Cities
The idea that the larger “McMansion” style homes will be harder to sell makes a great deal of sense. Those in their late 20′s and 30′s have just gone through a rough recession and have seen the damage that a housing recession can cause. Those coming out of college are so buried in student loans that housing purchases are beyond their ability. And the typical empty nest baby boomer just does not want to heat and cool such a large house in the face of high utility costs.
With the large amount of oversized homes built in the last 20 years, we know there is a huge amount of inventory that will be out there. So my question to you is, where is the demand for the larger homes going to come from?
investors will buy homes and rent them to groups of people, rather than families?
That would be a scary situation…
We see a large demand for homes in the 2,000 to 3,500 square foot range. Buyers wanting new construction often go larger than this, even. So, we’re seeing a trend towards bigger homes. However, the relative affordability in Charleston, SC certainly factors in this trend. I can’t imagine this trend in more expensive areas like New York or California.
I'm with you on the numbers, but students with college debt is a question mark, I mean debt is an american way of life I don't usually see freshly graduated, maybe freshly married young people worrying about two debts instead of just one, 20's and 30's people seeing the recession may take a toll on some but is another question mark overall there is no statistical way of knowing that and for that matter neither is there for baby boomers "not wanting to heat and cool there homes anymore." I follow you on the numbers and as far as predictions go that's what we need to stick with. Guessing and going with your gut didn't do us justice the past decade.
They may be willing to take on the debt, but the big question is will they qualify for it?
Which is why they will be renting homes as groups
You very well may be right. What a sociological change we will be facing as a country if this starts to happen…
Hi Tom…
It's a tough question and an issue that has yet to manifest in my area. Not only we still populating the larger homes, we are building more!
As much of a left turn as this seems, I think major underlying economic issues, such as inflation and the devaluation of the dollar, will have a far greater negative affect on the market than the potential of excess inventory. The ratio of the price of homes to the buying power of the average consumer will possibly diverge significantly in the future and place the larger homes out of the reach of the average buyer.
Joe,
Excellent points. We are still enjoying the low interest rates that is hiding the factors that you have discussed. Once they start to rise, things are going to get very interesting.
That's true
It's the mechanics of why the interest rates are low right now ($45B+ in mortgage bond buys / month, utilizing the printing press) that will contribute to why this approach can potentially fail. I often wonder what interest rates would be if they were truly driven by the free market – 7, 8, 9, 10+%??
I see more people buying homes like these for multi generational living since they can accommodate aging parents and boomerang college grads.
Great point. If this is the case, then we are looking at a major sociological change in American family living arrangements.
The market place today is so segmented and specialized that there simplly is not one answer. Those larger homes that are in strong niche markets (not LA, but West LA), have quality (materials, finish, design, maintenance), and scarcity (cannot easily be replicated) will sell and will continue to increase in value. Those large homes that do not have these qualities will suffer. The foregoing is a general rule of real estate that is time tested. I think that younger generations will continue to move into urban areas, seeking higher density, closer to work
living alternatives than the suburbs, where most larger homes are located. If I had a big home in a weak market and there were lots of them around me, I would be concerned. Some boomers are in the former category, some in the latter……
I am going to be selling a home in the Atlanta area that has a glut of these homes. It does prove the point that all real estate is regional though. Great comment Stephen.
Here in the UK space is a premium and there's always demand for good sized houses. Our problem is that a lot of new build stock is too small. Small apartments (in big blocks) are being built because that's the way builders get the most bang for their buck. Also isn't the American way to pass on your assets including property? So, rattle around in that big ole house and pass it on when 'your time comes'.
I think there will always be buyers out for real estate especially if you can get properties in prime locations. I doubt there will be a concern for people that want to live in downtown los angeles or there might be people that would absolutely hate it. i know i would love to purchase something in the central location so i could drive less and see more.
Interesting post Tom! Thanks for raising this up. The trends could limit the ability and desire of younger generations to buy some of the housing seniors and will release in the next two decades.
The economy and real estate are artificial. We will see a significant drop in housing and the stock market around 2015. Make sure you invest carefully, buy real estate frugally and take advantage of the mortgage debt forgiveness act while it is still here. It may not be around in the next 18- 24 months. Now is the time to settle your second mortgage or short sale your home.
Very interesting post. Makes you wonder what area of the country will be hit the hardest.
It’s interesting to see that this is the situation in the US. In Britain, those who take out student loans are actually finding it easier to buy a house/property due to the demanded repayments of student loans becoming less and less – even on a higher income.
The Augusta GA Real Estate market is experiencing a boom in new, large homes being built right now…and most buyers are wanting the extra square footage vs buying the smaller (by smaller I mean 3 or 4 bedroom home under 2500 sq ft) older resale homes. It is amazing how quickly home styles change from 2008 to 2010. The local builders had to make some serious changes in floor plans and standard building materials to stay in business and compete with the big box builders that came into our area. Now its a building boom in our area!
The property doomsayers will always find reasons why people won't be succeed in real estate. I'd rather focus on ways that they might!