Young and Minority Households Forces to Watch
Make room, baby boomers. Two other emerging groups of new home buyers are beginning to make their presence felt: the multicultural market, comprised of minorities and recent immigrants; and Gen Nests, the Gen X and Gen Y home buyers aged 25-39.
Information on the importance of these two markets and how to sell to them was presented at PCBC in San Francisco earlier this month.
According to Laguna Beach, Calif.-based research and consulting firm Weston Edwards & Associates, the multicultural market accounts for 42% of the total increase in homeownership and 50% of new home purchases. In addition, the research firm indicated that two of the country’s top 10 builders claim to be selling half their homes to this market.
The younger generations of Gen Nest home buyers are having as large an impact on the economy and home building as the multicultural market, according to Grace Hawthorne, publisher and CEO of ReadyMade magazine, which targets the lifestyle trends of the under 39-year-old market. Hawthorne said this market represents about 46% of the U.S. population ― almost 120 million people. And they spend nearly $300 billion annually.
“Gen Nests are buying their homes sooner,” said Hawthorne. “In the U.S., 40% of all 25-29-year-olds and 57% of all 30-34-year-olds own their own homes,” she added.
Diverse Opportunities in the Multicultural Market
The multicultural market includes blacks, Hispanics and Asian Americans, according to Jack Haynes, executive vice president of the National Home Builder Division of Countrywide Home Loans.
Currently, this market represents slightly more than 30% of the total U.S. population — about 89 million people — and by 2008 it is projected to grow by 10% to 107 million people, compared to growth of less than 2% for the traditional home buying market, Haynes said.
“In recent years, minorities have represented between 30% and 40% of first-time home buyers,” Hayes said. In the coming years, he added, more than half the first-time buyers will be from minority or immigrant groups.
In addition to having a large share of first-time buyers, the multicultural groups are also the dominant buyers of new homes, as a percentage of their populations, Haynes said. Between 40% and 50% of home purchases by the various multicultural groups are for new homes. In contrast, less than 25% of home purchases by whites are for new homes.
Factors Behind Home Buying Decisions
Hispanics are the largest and fastest growing of the subgroups. According to Andrea Wade, of Countrywide’s multicultural marketing department, contrary to the “male-dominated” stereotype, “females, extended family and trusted friends often play a role in the buying decision.”
She also said that Hispanics tend to put their trust in bilingual real estate agents, typically referred to them by a friend or family member.
Blacks, in general, want to work with someone who understands their experience as African Americans, Wade said. She added that they have a high degree of skepticism of banks, lenders and “special” loan programs and are not confident that they can go through the home buying process without experiencing discrimination.
“They are interested in working with professionals who are knowledgeable and who they can trust,” Wade said.
Within the multicultural market, Wade said the Asian market is the most culturally diverse ― in values and language — and this creates a wide variation in how they buy homes.
For example, she said many Chinese-Americans lack a formal credit history, primarily because of their cultural aversion to debt, and frequently distrust U.S. financial institutions. In addition, many prefer doing business with other Chinese in their native tongue, even if they are fluent in English.
Korean-Americans also distrust American financial institutions, Wade said, noting that they often have difficulty documenting their income, primarily because of the cash nature of the Korean culture and because they are prolific small business owners.
Homeownership is a critical investment for Vietnamese-Americans, Wade said. Like their Chinese-American counterparts, they prefer speaking in Vietnamese and having Vietnamese-language materials, even if they are comfortable with English.
Filipino-Americans generally view homeownership as an important indicator of social status and economic success, Wade said. They, too, prefer to work with other Filipinos.
Tips for Reaching the Multicultural Market
Wade said companies that want to sell to the multicultural market should:
- Commit to having a bilingual and multicultural staff and to conduct staff training that reflects cultural understanding.
- Rethink their messages and how communities are branded. For example, suburban communities that are named, gated or built around a single amenity such as a golf course are more apt to imply exclusivity to immigrants.
To support home buying and homeownership to these groups, Wade recommended that home builders:
- Develop strong relationships with lenders, real estate professionals, trade associations and community-based organizations that serve particular subgroups.
- Provide access to financial counseling and planning.
- Offer support during and after the transaction. “The ultimate goal is for your staff to become the buyer’s ‘trusted advisor,'” Wade said.
Gen Nest: Debt Is a Good Thing
Hawthorne said Gen Nesters are “more willing to take on debt” than previous generations and often have help from their parents to make a downpayment. “Young people want to spend more time at home and with family and friends. They are smart, motivated consumers and they buy higher-ticket items than previous generations,” she said.
When making purchasing decisions, style matters most, Hawthorne said, followed by quality, value and price.
Shoshanna Berger, ReadyMade magazine's editor-in-chief, said Gen Nesters tend to buy fixer-uppers and live in more “marginal” communities. “They can’t afford the kinds of homes they grew up in,” she said.
They prefer homes with high ceilings and open spaces that appear to have more space than they really have, Berger said.
Gen Nesters are fiscally savvy, Berger said, adding that 50% of people under 25 have already established retirement funds. They are also buying homes sooner than their parents or other previous generations did.
“The ability to buy homes earlier is due to their higher proportion of two-income households and their access to a jump-start from their well-heeled parents and wealth transfers as their parents retire,” Hawthorne said.
Nearly two million Gen Xers earn between $75,000 and $99,000. Their younger Gen Y counterparts account for $187 billion in consumer spending annually.
While baby boomers are currently downsizing, Gen Nesters are upgrading. They are more willing to put “sweat equity” into their fixer-uppers, live in those homes five years or more and then move up into larger homes.
According to American Demographics, 13% of Gen X non-home owners today say they plan to buy or build a new home, compared to 6% in 2000.
Leery of the Hard Sell
The way to sell to Gen Nesters, Berger said, is to build trust with them. “They are really leery of the hard sell. They want to believe they are doing everything themselves. So allow them to have ownership over the process.”
“They trust smaller, rather than larger,” Berger continued. “They hearken back to their grandparents’ generation when things were done more on a one-to-one basis.”
Hawthorne added that they appreciate the ability to have choices. “They like options and the ability to customize. ‘Customize’ is an important word to this generation of buyers,” she said.
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