Real Estate

Demographic Trends Affecting Housing – Part II

dianahill
Diana Hill
Professional Real Estate Investor Instructor

In part two of this series we’ll focus on the “Younger Baby Boomers” and part of the Echo Boomers “Generation X.”

The Younger Baby Boomers are defined as being in their early to mid-fifties. Generation X, children of Older Baby Boomers, are in their early to mid-forties.

The Younger Baby Boomers are facing several issues and challenges that are very different from their parents:

  • They might have had dreams of early retirement, however, because of the great recession it may be an extra decade until they can consider retiring.
  • Adult children are still at home, either because they haven’t left or “bounced back”
  • Loss of some equity in their homes
  • A lack of buyers for their move up homes
  • Facing flat incomes

Free WorkshopSo, how do these challenges affect the housing market? First, Younger Baby Boomers will be staying in their Suburban homes for longer then they may have wanted. The Older Boomers were able to sell these home to the larger population of the Younger Boomers looking to move up and at a time when appreciation and incomes were there to support these purchases. Now, the Younger Baby Boomers are faced with a much smaller upcoming group, Generation X (more about them later), who aren’t even all that interested in buying Baby Boomer style homes. So, who will they sell their move up homes to so that they can move on? The upside is that even though these homes may not be for the Generation X, the larger size homes at reduced prices make them very attractive for larger immigrant families.

The Harvard Joint Center for Housing Studies reports, “Real median household incomes in all age groups under 55 have not increased since 2000. In fact, for the first time in at least 40 years, there is a chance that the real median household income for these age groups will be lower at the end of the decade that at the start. Moreover, the severity of today’s economic contraction could hold down incomes and wealth for years to come.” This makes it difficult for the Younger Boomers to get into other markets, such as the second home market. This is one of the reasons this market is expected to be weak in the coming decade, with lower earnings, tighter credit and the lack of usable equity in their primary home it gives the Younger Boomers less to draw from.

So, the Younger Baby Boomers aren’t going to be making big moves in the housing market anytime soon. Many do still have the mindset to buy investment property, but what makes it difficult is the means to do it.

Generation X, also known as part of the Echo Boomers, are a different demographic than their parents. A few key differences are their work styles, 25% of them refer to themselves as “self employed professionals,” they are the best educated generation and are slower to marry and start families. They value home life and the stability of home ownership, but their preferences in housing are different from the baby boomers. Here are a few things we see the Generation X home buyer looking for:

  • Homes with cozy and intimate rooms. Gen Xers don’t think they need as much space as their parents. One possible reason for this trend is that Gen Xers are having children later and they are choosing to have smaller families.
  • They like a pragmatic use of space.
  • Homes in urban settings. This may be the first generation since WWI that doesn’t have a desire to move to the suburbs.
  • High quality homes with fine details. Their dream home may be smaller than their parents but not necessarily less expensive. They appreciate fine carpentry.
  • Low maintenance home. They have too many other interests to be out painting or doing yard work.
  • Homes pre-wired for all the technological devices that are a natural part of their lives.
  • Green homes. Environmentally conscious builders score big points with Gen Xers.

If you have been to one of my real estate classes, you know that one of the biggest points I make is that a successful real estate investor must identify their end user before they purchase an investment property. By looking at and understanding these demographic trends, we make a better determination of who that perfect buyer might be.

In the last part of this series we will go more in-depth on the Echo Boomers (Generation Y) and Immigrants and their growing families.

Great Fortune and Happy Holidays,

Diana Hill
dhill@tradingacademy.com

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