pd0809 tomorrows home buyer

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Michael Stumpf is a consultant in community planning, economic development, and market analysis, based in New Berlin, Wisconsin. 1 Place Dynamics Tomorrow’s Home Buyer By Michael Stumpf, September 2008 merica has been in a housing slump for more than two years. While waiting for it to bottom out it may be worth our time to look ahead and speculate on changes we may to see coming. Our notion of the American Dream is quickly being eroded by rising energy costs and generational preferences. These changes will im- pact both builders and communities as we climb our way back to a healthy housing market. Perhaps there is no greater threat to housing price stability than the coming Boomer Sell-Off. Much has been made of the fact that the first baby boomers are entering retirement, but that has not included much discussion about housing. As boomers retire they will be selling their homes to move into their final home. Research shows that a majority of these newly retired boomers will not be attracted to age-restricted retirement communi- ties, or even be as inclined to move to the south, as did their parents. Instead, most boomers will prefer a detached home or condominium, often as large as the home they are leaving. A look at many new developments shows that developers are al- ready responding to this demand. But boomers are also the largest age cohort in the U.S. population, and at this point in the housing cycle, many of them own homes. As they sell they will be adding an enormous inventory of existing housing to the market. There are fewer buyers in Generations X and Y, which has led some people to expect a glut of homes for sale. Further compli- cating the issue, Generation X and Y buyers do not want the same house as did the previous genera- tions. Their preferences vary, but a majority favor smaller homes with better quality finishes instead of a large home. They also prefer active mixed-use neighborhoods instead of suburban tracts and A

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This article reviews recent research into the desires of homebuyers, with particular emphasis on demographic shifts.

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Page 1: Pd0809 Tomorrows Home Buyer

Michael Stumpf is a consultant in community planning, economic development, and market analysis, based in New Berlin, Wisconsin.

1

Place Dynamics

Tomorrow’s Home Buyer

By Michael Stumpf, September 2008

merica has been in a housing slump for more than two years. While waiting for it to bottom out it may be worth our time to

look ahead and speculate on changes we may to see coming. Our notion of the American Dream is quickly being eroded by rising energy costs and generational preferences. These changes will im-pact both builders and communities as we climb our way back to a healthy housing market.

Perhaps there is no greater threat to housing price stability than the coming Boomer Sell-Off. Much has been made of the fact that the first baby boomers are entering retirement, but that has not included much discussion about housing. As boomers retire they will be selling their homes to move into their final home. Research shows that a majority of these newly retired boomers will not be attracted to age-restricted retirement communi-ties, or even be as inclined to move to the south, as did their parents. Instead, most boomers will prefer a detached home or condominium, often as large as the home they are leaving. A look at many new developments shows that developers are al-ready responding to this demand.

But boomers are also the largest age cohort in the U.S. population, and at this point in the housing

cycle, many of them own homes. As they sell they will be adding an enormous inventory of existing housing to the market. There are fewer buyers in Generations X and Y, which has led some people to expect a glut of homes for sale. Further compli-cating the issue, Generation X and Y buyers do not want the same house as did the previous genera-tions. Their preferences vary, but a majority favor smaller homes with better quality finishes instead of a large home. They also prefer active mixed-use neighborhoods instead of suburban tracts and

A

Page 2: Pd0809 Tomorrows Home Buyer

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Place Dynamics

large lots. As a result, many boomer homes, espe-cially in slow-growing parts of the country, may lose value or linger on the market.

High energy costs are a more recent part of the equation. At the end of June in 2005, just before the housing market began to falter, the price of gas was $2.21 per gallon. At that time, a median-wage worker in the United States, commuting to work the average distance, and having a car with aver-age fuel economy would expect to spend about $0000, or 00 percent of their income on gas just for travel to and from work. At four dollars per gallon that amount has increased to $0000, or 00 percent of the worker’s income. These and other rising costs are causing many buyers to rethink where they are willing to live. Perceptions that the same money will buy more home at the urban fringe are breaking down.

What should we expect when the economy im-proves and people again start to buy homes? The trends we are looking at suggest that locations close to concentrations of employment will fare better than rural areas or the urban fringe. Urban locations offering convenient or walkable access to shopping, restaurants, and entertainment may also be popular choices, including the revitalized downtowns of smaller communities along with urban neighborhoods. This may lead to a surge in redevelopment and infill projects, spurring eco-nomic revitalization.

In short, the housing market may look very differ-ent on the other side of the trough. There will be challenges, but also opportunities to continue de-

veloping new housing for current and future gen-erations. O

© 2008 Place Dynamics