Archive for the ‘Real Estate Economics’ Category
How New Homes Can Overcome The Foreclosure Market
Posted by Sibet B Freides in Real Estate Economics, Real Estate Trends, Sales on August 26th, 2010
In a market flooded with REO homes it is hard to convince a first time home buyer that buying a new home is the right choice. With so many discounts, it’s hard for buyers to really consider newly built homes. The good news for builders is that new homes can offer things that older ones just can’t.
I recently read an article titled “9 Reason to Choose a New Home Over a Resale” and it pointed out the distinct advantages of buying a new home. For builders and developers, these 9 points are the things that can win you the first time homebuyer who might be on the fence about buying new or getting a good deal on a foreclosure.
Most of the 9 points are nothing we haven’t seen before but its good to be reminded especially during this tough time. They include a reference to energy efficiency in regards to building envelopes and appliances that promote energy savings. It also mentions the customization options that most builders are giving buyers in today’s market. All of this added with better financing options make buying a new, energy efficient home pretty desirable.
Even though this article was written for buyers, as builders and marketers, we can use this information to understand what buyers will be looking for. Most of us understand what benefits buyers are looking for without reading this article but it’s important that these benefits are strongly communicated. We in the industry “get it” but does your consumer? Incorporating all of these incentives means nothing if buyers aren’t aware of them. There is little doubt that most developers know that energy efficiency and customization are big selling points in the new home market. Where everyone is coming up short is with his or her messages. All 9 points from this article can be incorporated into a cohesive marketing plan. Building these homes is not enough. We must be able to communicate these features in order to convince buyers that buying new in a troubled market is a solid investment.
The New American Dream
Posted by Sibet B Freides in Demographics, Marketing, Real Estate Economics, Real Estate Trends on August 12th, 2010
Past government policies have always promoted home ownership. In fact, Herbert Hoover believed that owning a home in America could help combat the spell of Communism during the Red Scare. Owning a home has always been the American way of life or at the least the desirable way of life.
It seems that our financial turmoil and the still slumping housing market is drastically altering the American dream. According to government officials and real estate experts, renting is the logical answer for housing and economic recovery.
Not only is this considered the answer to our country’s real estate woes but it also seems to be the logical choice for Americans. Attitudes have changed over the past three years when it comes to owning a home and we are going to see a drastic increase in demand for rental properties. We have learned a valuable lesson in that not everyone needs to own a home. While some may consider this idea harsh, the truth is that the attitude of ownership for all is what got us in this mess in the first place.
It’s comforting to know that the market will eventually fix itself or at least it appears it will. Those homeowners who shouldn’t have owned in the first place are the ones who have more than likely been foreclosed on. This puts them into the rental market where they probably should have been to begin with.
I know this all sounds a little harsh but there is a lot of truth here. Everyone is entitled to own a home but that doesn’t mean everyone should unless it makes financial sense. There is a big difference in the two. When buyers take on mortgages that they can’t handle they’re hurting more than just themselves. The housing market crash has definitely taught us that. The good news is that these hard times have taught buyers, lenders, and government officials a valuable lesson in home ownership.
Prepare for the rise of the rental market.
How The Recession Is Shaping The Future Of Real Estate
Posted by Sibet B Freides in Green, Real Estate Economics, Real Estate Trends on August 5th, 2010
Many experts believe that the developing demographic trends we are currently seeing will drastically affect the demand for future rental properties. After reading a report on James Chung’s webinar its is hard to argue otherwise.
In his presentation, Chung reviewed several factors that will directly shape the market. Included is the expansive growth of the US population. In Chung’s words, the positive growth of a fully industrialized country is very positive for the real estate market outlook. The point is that market demand and its marketing will completely rely on this growth. As preferences shift so does the market.
While it’s a challenging task, it is a positive one. According to Chung, the economic climate that the boomers and Gen-Y face will directly shape the majority of demand for tomorrow’s market. This makes complete sense when you consider the shear numbers of these two generations. . Whatever economic hardships these generations face now will determine what builders will be focusing on in the future.
According to Chung, the direction we are heading leads to an increased demand in rental property. Reduced incomes will cause this increased demand for rental property.
The change in consumer attitudes towards health change is driving more than just healthcare but also where people want to live. Consumers will want sustainable and healthy homes. We all understand that people want sustainable homes for energy savings but we also need to remember that they will want them for health reasons.
On a positive note, Chung assured participants of the webinar that the change in the market will be a positive one as long as developers recognize the changes and differences. In his words, “As bad as the recession was, it has corrected the market and has presented a window for reinvention.”
Generational Housing Desires
Posted by Sibet B Freides in Demographics, Marketing, Real Estate Economics, Real Estate Trends on August 2nd, 2010
A recent study asked 1,000 Americans to list the features of their dream home. All ages were polled including Gen-y, Gen-X, and Boomers. You can read about it here.
The article talks about each generation and what they desire in a dream home. It also offers an explanation as to why they chose these in relation to their stereotypical personality traits. Instead of focusing on the stereotypes, I think the more useful information comes from each generation’s life stage. For example, Gen-Y is young and mostly single. This is the major contributor to their desire for a home to be a social hub.
Then you have Gen-X who wants more family-focused features in their homes. I think saying their lack of desire for luxury or formality is because of their generation traits is a stretch. As the article notes many Generation-X are child bearing at the moment. They are looking for organization and means to control the chaos.
The Baby Boomers are described as the patient group finally getting their private home retreat as they become empty nesters. The problem with this outlook is that most baby boomers will not be retiring in this manner. I understand that the poll asked respondents about their dream homes and not their reality homes. It makes me wonder how accurate some of this information is. No where in the article do they talk about the hurting economy, a damaged housing market, or the toned down retirement life ahead. It would be hard for me to take this information and design a product for baby boomers as it doesn’t seem to take current economics into consideration.
This study is very interesting but I am not sure if we need to be using it to plan our next development like it suggests. I would take a lot of advice into consideration along with this input.
Conflicting Opinions On A Future House Shortage
Posted by Sibet B Freides in Real Estate Economics, Real Estate Trends, Sales on July 28th, 2010
There are many opinions on the topic of a possible housing shortage in America. One side thinks that with so many foreclosures sitting right under the surface we are about to have a major increase of REO homes coming to light. Others, mostly economists, think that a major lack of construction activity over the last two years will ultimately lead to a housing shortage. While both of these perspectives are probably right in some way, I think it all depends on how you look at it.
Is the market going to be flooded with older home including REO ones? It probably will be according to recent reports. On the other hand, the market for newly built homes will probably experience a shortage so those buyers wanting to buy new may have a harder time finding what they want. All of this of course depends on the market itself. According to a Smartmoney.com article, certain regions or cities will experience a shortage of flooding differently than others. Cities like Las Vegas, Phoenix, and Miami are overbuilt so a home shortage in those areas is not likely. States like Washington, Oregon, and Utah will probably experience a shortage sometime in 2012. These locations actually have a balanced supply and demand, which makes experts think that these markets may become under supplied.
In the end, I think it really depends on what regions you are analyzing. We are going to see recovery vary in different locations based on conditions before the crash and current ones. There will however be a noticeable shortage of newly built homes throughout the country. Builders have certainly been on hiatus the last two years and I would think we would definitely see a shortage there may be a boom in new home construction.
Floorplans Are Still Shrinking
Posted by Sibet B Freides in Demographics, Real Estate Economics, Real Estate Trends on July 23rd, 2010
Newly built homes are continuing to shrink, this according to NAHB’s analysis of recent U.S. Census Bureau data about newly built homes.
In 2007, home sizes peaked at an average of 2,500 square feet during the big industry boom. Sizes then flat lined in 2008 and then in 2009 sizes began to shrink. The average home has lost approximately one bedroom over the last two years. That is approximately 83 square feet.
I think we all understand that home sizes are changing for a couple of reasons. Is the only reason because of the financial woes that most Americans are facing? Many experts think so and believe that Mcmansions will return when the economy returns. I disagree.
I believe that an increasing interest in sustainable living and a reduction of emissions is also playing a major role in the shrinking sizes of new homes especially for the younger buyer.
There are other reasons for the rising demand for smaller homes. Builders are starting to realize that the buyer isn’t interested in wasted space. Demand has shifted from the “largest” to the “best value”. While floorplans are shrinking, the demand for features is growing. Features such as energy saving features, home office, better cabinetry, and entertainment rooms are becoming more important than size. Whirlpool and sauna tubs are a real seller for the Gen y group!
Experts are predicting that a recovering economy will not result in a boom in newly built homes or at least not anytime soon. Obviously, there is really no real way to predict consumer demand but all signs point to a demand for sustainability. This of course means smaller homes that are more energy efficient and incorporate more features. I believe the questions of the future will not be size, big or small, but is the architecture and the features different enough to convince the consumer to buy it. I heard an interesting speaker today who said architectural changes always result from economic downturns so we are due for some fresh architecture!
I do think that consumers are starting to understand the money that can be saved with smaller homes. It will be interesting to see what we want as a nation once the economic recovery takes off. Will we hold on to our new green principles or will we be striving for that extra square footage? It will be interesting to see how a new genertion of buyers who does not see the “need” to own a home affects size, features, price and our industry as a whole.
More REO Homes To Come
Posted by Sibet B Freides in Real Estate Economics on June 25th, 2010
As the country waits for a strong housing recovery that many predict will come in the 4th quarter of the year, there are some less optimistic reports.
Tracking the number of REO homes in America is a difficult task for anyone. Because of this, it’s hard for us to gain a clear perspective of the current condition of the housing market. As time passes more distressed properties are coming to market. It’s the shadow market everyone was worrying about earlier this year.
Housing economists across the country are having problems calculating the true number of REO homes. A WSJ.com article reports that while two leading economists are close with their predictions, neither one considers their findings sound. One thing that they do agree on is that the number of REO homes will increase in the coming quarters of the year.
In addition to these mystery numbers we must remember that struggling borrowers out there are at risk of losing their homes every month. According to the WSJ.com article 14% of mortgage loans on one-to-four-unit homes were delinquent or in the process of foreclosure. This represents 7.3 million households nationwide.
I wouldn’t expect an accurate estimate of the number of REO homes in our country anytime soon. Experts think that those looking for answers could be searching for the next two years. Let’s just hope a recovering economy can take the focus off of REO homes and on to a positive recovery.
Luxury Housing Market Showing Positive Signs
Posted by Sibet B Freides in Marketing, Real Estate Economics, Sales on June 18th, 2010
Recent reports show that the luxury housing market is showing a strong recovery from the housing crash of 2008.
A WSJ.com article reports that several regions are selling luxury homes at volumes similar to those of the first-quarter reports of 2005, a year in which existing-home sales volume peaked nationwide. According to the article, the regions that are still struggling share the strong characteristic of being located in suburban settings where more urban properties are experiencing great interest including multiple offers and bids.
In fact, the article tells the story of a couple living in San Francisco that failed to submit a winning bid for two homes during the first quarter of the year. It’s a sign that it’s not just investors that are entering the luxury home market. The couple in San Francisco had been saving for years and waiting to buy a luxury home when the time was right.
Many experts predict that the recent stall of the stock market could derail the positive momentum shift the luxury home market has experienced thus far this year. The article makes an interesting point that most consumers and their decisions in the luxury housing market are not driven by employment trends like other markets but by how well the stock market is performing and the Gulf oil spill has caused anxiety across all markets including luxury. We had a great first quarter and many believe this caused a sense of security among the wealthy. It’s a feeling that can quickly change if the market doesn’t see a strong recovery. If that were to happen, we would certainty see some very different numbers for the rest of the year.
The MetLife Study of Boomers in the Middle
Posted by Sibet B Freides in Demographics, Real Estate Economics, Real Estate Trends on May 6th, 2010
This study examines the largest portion of the baby boomer generation, which are boomers born between 1952 and 1958 that will be 52 to 58 years old in 2010. MetLife describes it as the traditional middle child situation that can be seen in most families. This age group shares many of the same characteristics of both the younger and older boomers but also bridges the gap between them by sharing some of their key characteristic. This Middle Boomers represent 38% of all boomers and about 10% of the U.S. population making them an important demographic for homebuilders specializing in retirement living.
Key Characteristics of the Middle Boomers
- More than half still have children living at home
- Two-thirds have one parent still alive
- More than 60% are still working full-time
- Describe themselves as being in “good health”
- Concerned about the affordability of future health care costs
- 86 % are homeowners
- 72% have been providing financial assistant to their children or grandchildren
Where do they stand financially?
According to the study, 50% of the Middle Boomers consider themselves behind on their retirement savings. This has a direct correlation with the majority still holding full-time jobs, the 8% working part-time, and the 5% looking for work. With their children living at home and receiving financial support, the Middle Boomers like most other boomers are facing a retirement like no other. With so many financial burdens and raising concerns of health care costs, boomers are being forced to change the way they view retirement.
The study notes that priorities are shifting away from traditional resort style retirement. Middle Boomers, along with most boomers, are becoming more concerned with their families future, financial security, and personal well-being.
This study clearly reveals that this large group of retiring boomers will be looking for something that will be comfortable, not extravagant. This isn’t to say that the resort retirement lifestyle is dead but the baby Boomer generation in general will be looking for something more practical and financially sound. If you’re in the 55+ market I suggest you take a look at this MetLife study. This is only a quick overview of its contents and I think reading the study in full would be very beneficial.
New Home Series Showcases With Major Success
Posted by Sibet B Freides in Real Estate Economics, Real Estate Trends on April 26th, 2010
I recently read an interesting Builderonline.com article that talks about the successful showcase of The Irvine Company’s new home series this year.
I think that this success can be attributed to several different things. Like the article said, Orange County hasn’t seen new homes in years and I think that there was some pent up organic demand.
While pent up demand certainly doesn’t hurt the market, I think there were other measures taken that really helped. Just because someone wants to buy a home doesn’t mean they will buy something they don’t want. This is especially true now as buyers re-enter the market with extreme caution and frugality. Buyers know what they want and they aren’t willing to invest in something that doesn’t meet most of their criteria.
When The Irvine Company brought in over 200 potential buyers to critique old floorplans (pre-recession plans) they were really on to something. Each potential buyer was armed with a pad and pencil and wrote about the good and the bad. Afterwards, each one was interviewed about what they thought. These interviews were recorded for later use.
I think this was such a good move for several reasons. For starters, Irvine met with 200 potential buyers and gave them influence and decision making power. I wonder how many of these 200 came back for their new home series opening. Can you imagine if these people viewed homes that they helped design? I think that would be a good start to a buying process. By enlisting the help of these potential homebuyers, Irvine updated their product to suit the needs and wants of today’s market. Did they assume? No, they went straight to the source to find out.
Irvine is a large company and I know that most builders are unable to do something like this on a large scale. I think it’s interesting that they empowered consumers the way they did. I think that is the takeaway here. Consumer insight is always a useful tool when designing a product regardless of the market. An inexpensive way to get input would be to ask visitors to your website. Or ask their opinions via social media. There are many ways to get consumer input today. Make sure you are ready for the post-recession buyer.
