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Lost Wealth Won’t Keep 50+ Home Buyers Down for Long
Reeling from a sizable decline in wealth as a result of the current downturns in housing and the financial markets, members of the baby boom are in a bit of a holding pattern for now, but will gradually make their way back into the housing market, eventually in a big way, according to panelists at NAHB’s Building for Boomers and Beyond 50+ Housing Symposium in Philadelphia April 27-29.
Builders at the conference reported that selling an existing home has become a major stumbling block for households who would like to move to an active-adult community either restricted or targeted to 55+ residents. For the most part, however, this segment of the market is performing no better or worse than the housing market overall, which is generally sluggish and just beginning to emerge from the grips of the most painful slump in decades.
Sales to 55+ buyers are expected to strengthen next year, and some segments of this market — particularly the most affluent — could become notably robust as early as 2012, according to some of the forecasts that were presented.
Builders who have been keeping a close eye on the business potential of the baby boomers, who are currently age 45 to 63, have also been watching trends suggesting that these aging households have different plans for living out their retirement years than the generations preceding them.
A comprehensive study by NAHB and the MetLife Mature Market Institute released at the symposium added extensive findings aimed at helping builders gauge housing demand among 55+ owners and renters, who next year will represent one-quarter of the U.S. population.
The results of the study support a wide range of research showing such trends as baby boomers working longer into their retirement years, staying closer to their current address when they move and choosing to make aging-in-place modifications to their homes as an alternative to moving. The group as a whole, and especially its younger half, takes a dim view of the traditional retirement lifestyle. Some analysts said that targeted housing that groups 55+ residents in pockets of the general community is the fastest emerging development in this demographic.
NAHB Chief Economist David Crowe forecast that housing starts attributable to demand from the 55+ segment of the marketplace will slide from about 250,000 last year to almost 126,000 in 2009 before gaining some ground in 2010 with an increase to 175,000 units.
“The market will fall and rise again,” he said. The explanation for this year’s 50% decline in 55+-related construction, he said, is that “all housing is doing this.” However, the vibrant upward push that normally might be expected coming out of a recession will be “tempered” by the adverse impact of the downturn on household wealth.
New home sales to 55+ buyers are expected to rise from more than 85,000 this year to almost 125,000 next year, Crowe said. Of those, sales in age-qualified or other 55+ communities will climb from roughly 26,000 in 2008 to 38,000 in 2010. In the strictest terms and looking only at housing marketed as 55+, for now “this is a relatively small market,” he said.
Currently, “the trade-up market has a problem,” said Mark Zandi, chief economist for Moody’s Economy.com.
The recession has put the dynamics of the housing market into disarray, and Zandi noted these demographic components to describe how: Thirty-three is the average age of the first-time buyer, he said, but 30-somethings are temporarily in a period of “going nowhere.” Forty-three is the average age of the trade-up buyer (who has to be able to sell to the first-timer). Incidentally, there are currently more people in the U.S. who are 49 than any other age. The second most common age is 19, the first-born of the 49-year-old who will soon enough be an empty nester. “And 50-somethings will take time to get going because of lost equity” in their homes as of this year’s first quarter, he said.
“The demographics are in your favor and will ultimately prevail,” Zandi told 55+ home builders. “But it will take time to get the prices up.”
From a peak of $65 trillion in late 2007, total household net worth has slipped $15 trillion to $50 trillion in the last year and a half. “Much of that wealth is in the boomer generation,” he said. “It will take time to repair balance sheets — that cracked nest-egg — and it will be a weight on their ability to buy things over the next three to five years.”
And if stocks begin to gain 5% annually on average, it will take a full decade for retirement funds to recover their recent losses, Zandi suggested.
Citing a further impediment to a rapid turn-around in the 55+ market, “people are not dissatisfied with where they live right now,” said John Migliaccio, director of research for the MetLife Mature Market Institute, who helped present findings from the study conducted by his company and NAHB. In that survey of the mature housing market, 90% voiced satisfaction in their current housing.
Residents of age-restricted active-adult communities showed the highest satisfaction rates.
“Builders face significant competition just from the current housing they [mature households] live in,” Migliaccio said.
The research, which includes an in-depth profile of the 55+ market, was based on figures from the U.S. Census Bureau’s American Housing Survey from 2001 through 2007. The survey is conducted in odd-numbered years.
Among the key findings of the study, “Housing for the 55+ Market: Trends and Insights on Boomers and Beyond”:
- The majority of 55+ households do not live in age-restricted (age-qualified) or other 55+ communities, but that number is on the rise. The share of those living in active adult age-restricted communities grew from 2.2% in 2001 to 3% in 2007. Those moving into age-restricted rentals over the same period climbed from 3.2% to 4.0%.
- Among the top reasons for moving, Migliaccio said, is the desire to live close to family members or relatives. For the mature market, “a destination can now be the middle of New Jersey,” he said, a departure from the traditional migration of retirees to sunny communities in Arizona and Florida. In 2001, just under 20% of those surveyed cited proximity to friends or relatives as a reason for choosing an age-qualified active adult community, he said. In 2007, that had increased to about 40%, “a major shift.”
Movers were also looking for better quality, a somewhat larger place and a location that would accommodate career changes.
In today’s bad economy, mature households are reconsidering their retirement plans and weighing the possibility of staying in their jobs longer, a trend that was underway even before the downturn. “People near retirement age are piling up at the door, deciding about employment,” he said. But “55+ consumers are working longer; proximity to work is a key driver, regardless of the community type.” Proximity to work was cited as a reason for choosing an age-qualified adult community in 2001 by only 2% of those surveyed; that rose to 8.8% in 2007. The increase represents a “significant” change, he said, although the percentage was still relatively small. Among those who moved into other 55+ owner-occupied communities, proximity to work was a factor for 16.2% in 2007, up from 8.5% in 2001.
Since 2007, he said, finding a larger place has probably diminished as a priority, especially among age-qualified active adults. “A lower home price is more important to movers in multifamily units,” he added.
- Active adult communities are attracting younger buyers, who are under 60 and still working.
- In single-family detached homes, customers were most often two-person households. Married couples without children accounted for nearly half of the market. In 55+ multifamily communities, customers were usually one-person households. One-person households headed by a female dominated both the 55+ multifamily and age-restricted rental markets.
- 55+ single-family detached customers constituted “a relatively well-to-do group,” Migliaccio said, with average income of almost $70,000 in 2007. And the share of high-income households in the age-qualified active adult market is on the rise, “a good sign,” he said. However, almost two-thirds of age-restricted rental customers earned less than $20,000.
- Prospective buyers of single-family detached housing looked at more homes before buying than anybody else, he said, and they were likely to shop in multiple neighborhoods. On average, age-certified active adult buyers looked at 13.6 homes and buyers in other 55+ owner-occupied communities looked at 15.1. Age-restricted renters saw an average of only 2.8 homes.
- A significant share of buyers in age-qualified active adult and other 55+ communities took out a mortgage in 2007 — 51% and 40%, respectively — but the loan-to-value ratios were relatively small, at 65% and 61%, according to Crowe. “They have a lot of equity to put down,” he said. The sale of a previous home was the source of the downpayment for 92% and 78%, respectively.
Mark Stemen, CAASH, senior vice president, Active Adult Landover Group for K. Hovnanian Homes, said that his company has had to become more “creative” to tap into the 55+ market. “There are one million people on the move in the 55+ market,” he said, “but 70% don’t live in 55+ housing."
With “the 50+ crowd working longer and deferring retirement,” Stemen said, “we are building our product close to employment centers” that can typically be only seven to 10 miles away from a mature buyer's existing home. To capitalize on the trend toward younger buyers moving into active adult communities, “we are changing the image from the old Sun City concept to something more vibrant” and giving clubhouses spa characteristics.
And with 55+ prospects feeling the loss of household wealth these days, “there may be a trend toward market-rate senior rentals,” he said.
Shaken by the hit on their retirement savings, 55+ buyers are also now likely to “put less of their assets into new housing.” As a result, K. Hovnanian has been downsizing some of its product, starting with homes as small as 1,100 square feet, down from a minimum of more than 1,500.
“People are frozen in position,” Stemen said. “This is a discretionary purchase, and we have to convince them to move.”
“The simple life is here,” he said, “the way it used to be in the 1950s and ’60s.” For housing, that “new austerity” translates into efficient, open floor plans; higher densities; lower electric and heating bills; and greater comfort and improved air quality.
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