As the economy improves, more millenials will start families and seek new homes. But they will shop with different attitudes.
For a homebuilding industry that purports no immediate reason to market to twenty-something millennials, they sure love to talk about them.
“Younger minorities and aging boomers will drive household growth in the next decade,” emphatically states “The State of the Nation’s Housing” report, recently released by the Joint Center for Housing Studies of Harvard University. According to the report, from 2015 to 2025, these demographic forces alone will drive household growth of 11.6 million to 13.2 million.
We’ll get to the dramatically changing Boomer market next week. But the biggest driver of new home sales in this next decade will be millennials; those coming of homebuying age and numbering 80 million strong.
Millennials will form 24 million new households from 2015 to 2025, states the Harvard report. “Given the sheer volume of young adults coming of age, the number of households in their 30s should increase by 2.7 million over the coming decade, which should boost demand for new housing,” the report adds. (Charts and graphs courtesy of Harvard.)
Are We There Yet?
All is not well in Merry Millennial Land, however.
Home ownership among those in their prime starter home years of 25 to 29 has waned from 40.5 percent in 2007 to 34.3 percent in 2012. Too many in the so-called millennial generation have come of homebuying age in one of the most difficult economic periods in history, and they just don’t have the finances or credit to afford new homes—yet. They’re saddled with crushing college debts, and many are forced to live with their parents.
Yikes! But the dire outlook shouldn’t continue. Millennials living at home are saving their money (we hope) and fueling a market for boomerang baby suites being marketed by homebuilders like Lennar and Pardee.
The poor economy has simply delayed most millennials’ dip into the single biggest purchase they will make. There is now pent-up demand, and as the economy continues to strengthen, more Millennials will marry and want to start families.
As Rick Fletcher, vice president of sales and marketing at homebuilder MBK Homes says, “At some point they will buy houses, and there’s 80 million of them. And that’s when home technologies will explode.”
MBK already offers smart home options with Control4 home control systems in its communities of Jacaranda (Stanton), Sea House (Costa Mesa, shown) and Vineland Metro (North Hollywood) in California, so it will interesting to see how the millennial flood will evolve MBK’s home tech offerings.
Millennials’ mass migration from rental markets to single-family homes could happen as early as 2015.
They will also be largely minorities. Minorities will drive 76 percent of net household growth, states the Harvard study. “By 2025, minorities will make up 36 percent of all U.S. households and 46 percent of those aged 25 to 34, thus accounting for nearly half of the typical first-time homebuyer market,” states the Harvard report.
A Different Conversation
This is not going to be your Daddy’s home sale. Or yours. Marketing to millennials requires different selling points and strategies.
“We have to engage in a new conversation with them about homeownership, in what they want out of their lifestyles,” said J. Walker Smith (shown), executive chairman of the Futures Company at the recent PCBC West Coast builder’s show.
“There is a different conversation about homes among young generations these days. They don’t have the same needs with a house as previous generations, and they want something simpler out of their lifestyles.”
Smith says homebuilders have to figure out other benefits and features to get younger people into their homes:
* Social homes—for social connectivity and entertainment.
* Technologies—for working and playing wherever, and managing a home from afar.
* Digital overload retreat—with “passive digital” or automated home tech functions.
* Sustainable home—to meet their more eco-friendly values.
All of this is not to say that traditional aspirational home is going away, Smith says, just that the conversation is changing.
“A master plan has to function in a way that makes sense to them,” Fletcher adds. Millennials don’t want to give up the aesthetic of urban living and will bring their values to single-family homeownership, in the forms of social connectivity, walkways,sustainability, places for dogs, etc.
Overall, says Smith, homebuilding for millennials is an underserved niche and an underserved marketplace. Prepare for seismic changes.
Next Week: Boomers, Over 50+ housing, and MDUs