50+ Housing Sales Slump at the End of the Road
The year ahead looks increasingly positive for the active adult housing market, according to participants at an Oct. 7 Web seminar sponsored by the NAHB's 50+ Housing Council. But joblessness and tighter credit conditions still linger as constraints on sales and construction activity, they said, and in the early stages of recovery prospective buyers will continue to be price-conscious and to demonstrate restraint.
“It’s not the time to run out and start great developments at this moment,” cautioned Margaret Wylde, president and CEO of ProMatura Group, LLC, who led an hour-long discussion on prospects for the 50+ market. But, she said, “there’s going to be a gradual pull out from where we are now, and within the next two years we will see a significant rebound.”
Wylde said that the industry turnaround will occur in a climate of initially slow growth, with job concerns exerting significant constraints on consumer demand, which is the driving force in the nation’s economy.
“There is high unemployment today,” she said, “and it is projected to get a bit higher. New job growth or creation is slow and will continue to be slow for a while. Jobs just aren’t being filled. New jobs aren’t being created and some jobs are still being destroyed.”
The availability of credit also remains a major obstacle, she said. Her company’s polling of active adult home builders in September found that their credit woes had worsened over the previous six months.
Seventy-four percent of the builders said that it had become harder to secure credit for business operations; 70% reported tightening in the availability of credit for residential acquisition and development; and 61% observed that it had grown tougher for their customers to qualify for a mortgage.
On the brighter side, in a survey in September of 50+ households with annual incomes of $50,000 or more who either purchased a home in the last two years or considered buying one in the coming three years, 68% rated today’s market as “excellent to good” for purchasing a home.
Despite major obstacles on the job and credit fronts, 74% of the active adult builders contacted last month said they expected to see rising home sales in the coming six months. “We’ve come to the end of the road in terms of declining sales,” said Bernie Smith, CAASH, ProMatura Group’s chief operating officer.
“There is overwhelming sentiment out there among communities and the builders that we are at the bottom and over the next six to 12 months housing will improve,” he said.
Looking at their sales expectations for the next six months, 35% said they would be flat, 57% projected an increase and only 4% were gearing up for further declines. Looking out a full year, 78% cited higher expectations for sales in their community; 13% said sales would be the same as currently and 4% projected a decline.
Survey findings also indicated that active adult builders will be slowly ramping up production in the next 12 months. Thirty-five percent said they would be breaking ground on a new development during that period, while 57% said they had no plans and 9% were unsure.
Survey research by ProMatura Group shows that builders of homes for the 50+ market, including active adult developers, have been weathering some difficult challenges:
- According to statistics from the U.S. Census Bureau’s American Community Survey, the percent of the 55-to-64-year-old households that moved fell from 8.0% in 2006 to 7.3% last year, a decline of 8.8%.
- ProMatura’s national survey of 50+ consumers this September found that 13% had purchased a home in the last two years. Of those home buyers, 70% had purchased an existing home and only 30% had bought new. Of the buyers in a similar survey conducted in September 2006, 55% of the purchases were new homes and 45% resale.
- From the second to the third quarters of this year, 59% of the active adult builders contacted last month reported slower visits to their sales centers, 33% cited lower deposits and 26% said they had seen fewer closings.
- In last month’s builder survey, only 20% said sales for the past 90 days were up from the preceding 90 days; 53% said they were the same and 20% said they were down.
- Forty-eight percent of the active adult builders said that their sales and marketing budgets were down this year compared to 2008; 30% said they had increased them.
- ProMatura found that 79% of active adult communities are currently offering buyer incentives, just about the same as last year’s 80%, said Smith. The most common have been builder discounts and free upgrades and options. The value of those incentives averaged about $21,000 this year, down from almost $34,000 the year before.
Active adult buyers were more apt to be offered incentives than other 50+ buyers. A survey of active adult buyers in January found they were offered incentives averaging more than $31,000, compared to more than $21,000 among the 50+ home buyers polled last month.
The September survey found that 50% were unlikely to buy a home without an incentive.
- The initial asking price of a new 50+ home was $210,000 this July, down 31% from $305,000 in July 2007, according to ProMatura survey research. The amount actually paid for the home dropped 37% from $285,000 to $180,000 over that same period.
The difference between the asking price and the price paid was 6.5% in July 2007 and 14% this July.
Half of the active adult builders surveyed in September said their home prices were down from a year ago; 39% said they had stayed the same; and 11% said they were higher.
However, on a square foot basis, buyers in this year’s third quarter were paying only 4% less than they had been paying in the third quarter of 2007 — $125 and $130, respectively.
- Half of the prospective home buyers polled last month said they preferred a home costing less than $200,000, up from only 21% in a similar survey in 2006.
Even with business down, Wylde noted that active adult communities have avoided the soaring foreclosure rates occurring elsewhere; 78% of those surveyed in September reported no foreclosures and 9% had one.
Gauging the potential for active adult housing, she also said that 29% of the prospective buyers identified in last month’s survey said they would consider buying in a 55+ community, considerably higher than the 8% in the survey who said they lived in age-qualified housing, of which about 70% were in active adult housing.
Active adult buyers, she added, are more amendable to giving up extra space and moving to a smaller home because they are trading size for quality.
For more information on 50+ housing resources available from NAHB, e-mail Ann Marie Moriarty, or call her at 800-368-5242 x8350.