If you’re interested in expanding your business to work with new-home buyers, it may help you to know more about the types of consumers who are looking for newly built homes.
Research by the National Association of Home Builders (NAHB), John Burns Real Estate Consulting and Coldwell Banker Residential Brokerage shows that newly built homes today are being purchased in greater numbers by repeat buyers and wealthier buyers than by first-time buyers.
Some of these buyers are baby boomers motivated by the desire to downsize into a lower maintenance homes; others are interested in moving up to a larger home and some are interested in buying a residence that will accommodate multiple generations under one roof. Of course, all real estate is local, so buyers in your region may not follow these national trends. One way to educate yourself about who’s buying new in your area is to visit new home communities and talk to builders and their sales staff.
Decline of First-Time Buyers
“Typically about 30 percent of new homes are sold to first-time buyers, but in 2013 only 16 percent of all new home sales went to first-time buyers,” says Stephen Melman, director of economic services for NAHB. This correlates with the drop in first-time buyers for resales from typically 40 percent of purchases to 27 percent in 2013, as reported by the National Association of Realtors (NAR) in June 2014.
“First-time buyers are a larger share of the new-home market in some areas than others, but it depends a lot on affordability,” says David Schoner, vice president of the new homes division of Coldwell Banker Residential Brokerage. “The cost of housing is a function of land availability and cost and first-time buyers typically aren’t looking for expensive homes.”
While Melman says that higher down payment and credit score requirements make it harder for first-time buyers to qualify for a loan, Dan Fulton, a senior vice president with John Burns Real Estate Consulting, says first-time buyers may find it easier to finance a newly built home. “If they find a builder who’s used to first-time buyers, that builder typically has a good relationship with a mortgage company that will help them get a loan,” says Fulton.
NAHB research says that typical new-home buyers in recent years have strong credit scores and high levels of income. In 2013, the gap between the average credit score for all consumers and the average credit score for mortgage borrowers was 58 points, compared to a gap of just 33 points in the early 2000s. The median income of new-home buyers rose from $91,768 in 2005 by more than 17 percent to $107,607 in 2011. The NAHB points to these two facts as part of the reason that new homes are getting larger, averaging 2,679 square feet in 2013, about 150 square feet larger than in 2012.
“Our research shows that move-up buyers are particularly interested in the design of their home; that the number one or two reason for all of them to buy a newly built home is that they can get an open floor plan, a bathroom with a ‘super-shower’ and a kitchen with an oversized island with lots of seating,” says Fulton. “Resale homes are not typically designed the way today’s buyers want to live.”
Even in townhouses, Fulton says, homes built as recently as the mid-2000s had more defined spaces compared to the open space preferred by today’s buyers.
Schoner says baby boomers are all about “cool” features in new homes, even if they’re downsizing.
“Baby boomers are often willing to sell their home and buy something that’s 25 percent to 50 percent less costly than their current home, but in wealthy areas like Potomac, Md., they’re selling a $2 million home and buying a $1 million condo,” says Schoner. “They’re willing to accept a smaller home, but they want a better-built home, not just space for the sake of space. We call this ‘practical elegance,’ homes that are energy-efficient and no longer have wasteful two-story spaces.”
Downsizing buyers tend to look for efficient use of space, especially in practical areas such as closets, laundry rooms and kitchen storage.
“Most people who are downsizing make a lateral move in terms of price from their current home to their next one or go down by up to 30 percent of the price of their current home,” says Fulton. “There’s a big demand for single-level living and active adult housing, so I think we’ll see five to six percent more of that type of housing being built annually in the next few years.”
A recent report by the Pew Research Center shows that 18 percent of Americans lived in a multigenerational household in 2012, mostly because of the increase in the number of 25- to 34-year-olds living with their parents, grandparents or other relatives. Interestingly, the report shows that it’s more common for people in that age group to live with relatives than for those 85 or older, traditionally the age group most likely to live with family members from another generation. The study shows that 10 percent of households headed by someone born in the United States are multigenerational, compared with 16 percent of households headed by someone born outside the United States.
Builders are responding to this trend by designing homes with flexible spaces to accommodate parents, in-laws or adult children. “Lennar designed their ‘NextGen’ homes to meet the needs of multigenerational families, so that instead of renovating, families can buy a house that’s a little larger and has a separate space with a private entrance,” says Melman.
The separate section has a bedroom, bath, living area, laundry and eat-in kitchenette. “On the West Coast there’s more of a commitment to multigenerational housing, in part because there are more liberal zoning laws in California, Arizona, Texas and New Mexico compared to the East Coast, where it’s more ‘multigenerational light,’ ” says Schoner. “In the West you’ll see places that have a casita on the land or two homes that are connected on the same lot. We’ve found in focus groups that homes with dual master suites, one upstairs and one downstairs, are popular.”
While dual master suites are more common in single family homes, Fulton says that Van Metre Homes, a builder in Virginia, designed a luxury townhouse with this feature. “That design offers flexibility for the older parents to have the downstairs suite while the owners live upstairs; then later the owners can move to the first floor if they need to. It also works to have adult children living on a separate level,” he says.
Whether it’s in response to a specific niche such as multigenerational homes or downsizing buyers, Schoner says builders are more on trend now and ahead of the curve of buyer tastes. “We tell them to pay attention to the focus groups and research, so they don’t build a ‘brand new for 2005’ house in 2014,” he says. “Depending on the price point, they’re more willing to do things like drop the living room and the dining room and build a big kitchen with an oversized island and a great room.”
If your clients are moving up, moving in with family or downsizing, a newly built home is likely to meet their needs in a way a resale cannot.