Economists at the Las Vegas 2015 International Builder Show expressed optimism about the year ahead in terms of national economic growth and the strengthening housing market. They cited a stronger labor market, low interest rates, improving mortgage availability and growing pent-up demand as factors that will boost new home sales and accompanying commercial growth in 2015. In its current issue, the Realtor magazine supported this optimism, although tempered with the impact of less certain health of the global economy. Neither addressed the issue of consumer needs and preferences, as well as ability to buy.
Although there can be little doubt that the economic growth indicators cited above, in addition to record employment gains, are in place for stronger growth, all of these projections are directed at overall demand rather than examining the demographic shifts fueling that demand. The fertility rate is at a record low. The fact is that the U.S. birthrate continues to fall, causing the Census to revise its population projections downward for the next several decades, including the remainder of this decade. Its new forecast adjusts births downward by 200,000 to 400,000 per year. From 2015 to 2060, the Bureau of the Census forecasts nearly 15 million fewer births than in its former projection. Historical trends are not guidelines for future planning.
But of even greater importance to homebuilders is the changing mix of households, most particularly families. Married couples with children under age 18 numbered over 27 million in 2007 (24 percent of total households), but in 2014 these households fell to almost 25 million (21 percent of total households). Twenty years ago, in the “good old days”, these families were almost one-third of total households; now down to one-fifth of total households and continuing to decline. Yet, a great many builders continue to look to this consumer segment as their primary target for future business planning.
The key question for planning future business is WHO wants a new home this year, next year and beyond? Four generations of Americans are potential buyers. By far the largest group is the so-called Millennials currently up to age 37, numbering almost one-quarter of the population. But a very large proportion of this group is in rental accommodation (or free rent in parental homes) by necessity, due to financial limitations caused by under-employment, stagnant wages, and college debt. Economists do not expect them to seriously impact the new home market until 2017 (despite sporadic news articles to the contrary). The older Generation X age group from 38 to 50 are potential home buyers, but only number less than 15 percent of the population.
The Baby Boomers from age 50 to 70 constitute almost one-quarter of the population and over 70 percent of all older Americans, but a large proportion of them are content to age in place. Over one-third are disabled and two out of three Americans over age 65 have difficulty with mobility. So, the actual number of potential homebuyers able to maintain a new home is not much greater than the current Generation X potential. However, they do have the advantage of better financial support than younger consumers and currently constitute the strongest segment of the new home market. The current ratio of homeowners (and renters) nationwide is Millennials 15% (43%), Gen Xers 21% (22%), Boomers 41% (25%), and Older Americans 23% (10%).
Another aspect of demographics is the changing nature of migration within the United States. Whereas California and Texas have scored top rates of net in-migration from other states, the latest population estimates list North Dakota, Nevada and South Carolina as the top three, followed by Colorado and Florida.
The conclusion to be drawn from these data is that our nation is undergoing rapid changes in needs and preferences for new homes. These national data do not prescribe the demand parameters for your local market. But the same types of data estimates are available for local markets. We suggest that you acquire them as a basis for smart business planning. If you encounter difficulty, contact us for expert help.
If you would like to explore further details on this or other blog articles, please contact Dr. David F. Parker at (904) 992-9888, or firstname.lastname@example.org or go to www.parkerassociates.com to read more about what Parker Associates can do for you.