The building industry is experiencing a period of myriad opportunities and challenges, making it hard to pin down one overwhelming influence affecting their businesses.
“It’s really a confusing time,” Mollie Carmichael, principal at Meyers Research, said on a webinar in late January, hosted by Metrostudy.
Carmichael outlined the results of a study Meyers Research conducted with Metrostudy.
Existing homes sales fell between 2017 and 2018, she said, “but we also had a tremendous 2017.”
Data from builder marketing firm BDX show that its new construction search site newhomesource.com received about 2 million monthly online visits from home shoppers, Carmichael said, but there was a big decline in December.
The fourth quarter was hit with changes in the stock market, compounded by uncertainty from the 2018 election, trade wars, increasing interest rates, and uncertainty in general, Carmichael said. Low supply is pushing up prices around the country, and consumers who would be interested in buying have fewer choices, she said.
However, there are positive indicators as well. Consumers are confident in their job security. Consequently, consumer spending is strong.
The current recovery is about five months away from being the longest economic recovery ever, she said. “This recovery, how long it can last, we still have some life left,” she said, suggesting “at least another year or two of strength.”
Mortgage applications are up so far in 2019, Carmichael noted. She attributed that to some lower interest rates, as well as a tougher November and December for many builders.
Demographics and regional growth
Most growth is heading west, Carmichael said, but affordability is not following it.
“When we look at the West, that’s where affordability is the most challenged,” she said. Idaho is an exception where affordability and growth intersect.
Meyers Research examined the behavior of over 21,000 new home shoppers around the country to determine who was buying homes.
The study found that around the country, between a quarter and 40% of consumers would consider “microhomes,” those that are between 900 and 1,500 square feet, if there were more affordable. Furthermore, 82% of shoppers said functionality was more important than size when considering a home.
“When you look at the challenges with affordability, we have to get better with space,” Carmichael said. “We have to get to a more deliberate approach with a more functional and, frankly, more exciting space.”
She emphasized that the “opportunity for 2019 and 2020 is figuring out how to get that 1,500 square feet to feel like 2,000 square feet.”
She pointed out that the average home size before 1950 was under 1,000 square feet.
“Many of us have lived in these smaller homes, and they can be great if designed right,” she said.
Who’s buying and why
Young boomers make up the largest buyer group, followed by Gen X and older millennials. Younger millennials and mature boomers are less likely to be shopping for new homes, Carmichael said.
She noted that “tweeners,” the people born on the fluid cusp of the Gen X and millennial generations, are the most mobile buyers.
“Because we have the most shoppers out there for young boomers,” she said, “it does take them two to four times as long to make a decision.”
Correction: The original version of this article cited data that indicated BDX received about 2 million monthly online views. The correct metric is visits, which measures the number of times users visited the website, not the number of pages viewed by users. This article has been updated to show the correct metric and to clarify the source of the data, BDX’s listing site newhomesource.com.
Life stage is the primary driver for home purchases, Carmichael said, “but there is a nice percentage that says it is design driven.” Across all regions, she said, between 58% and 72% of buyers say their home buying decision is based on their life stage.
The youngest millennials will turn 25 next year, while the youngest boomers will be hitting 55. That means huge swaths of the population will be either getting married and starting families or thinking about retiring and downsizing.
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Carmichael broke down the life-stage buyers and found mature couples were most likely to be shopping for a new home. Their primary criteria are financial security, affordably lifestyle and privacy and safety. Young families were the next largest group, who are looking for homes with time-saving technologies.
Although single homebuyers aren’t the largest group, Carmichael noted the number of single homebuyers is growing, particularly mature singles.
Perhaps not surprisingly, young couples are the smallest group of homebuyers.
Carmichael believes multigenerational housing will grow dramatically. Between 6% and 11% of home shoppers are currently living with multiple generations, the survey found. Between 8% and 13% expect their next move will take them into a multigenerational home.
The study found 60% of consumers think it’s a good time to buy a home, down from 77% last year, Carmichael said. Mature couples and singles were the most optimistic, the survey found, with 66% and 63%, respectively, saying now is a good time to buy a home.
Affordability is the primary obstacle to buying a home, the survey found, followed by lack of options and rising interest rates.
Just 12% of shoppers said they were being priced out by aggressive bidders, and just over one in 10 said they had too much debt or otherwise couldn’t qualify for a new home.
The Fort Collins-Loveland and Greeley metro areas were among the top 10 regions in the country to say the time isn’t right to buy a home. The survey found 54% and 53% of shoppers in those respective metro areas were pessimistic about buying a home.
“Some of these are purely affordability issues,” Carmichael said, noting “we can address that with better [product] solutions.”
Design is critical to home shoppers
The majority of shoppers—94%—said a home’s interior style was among the most important home features, the study found, followed by 81% who cited curb appeal.
“We have to get better with our design to meet the price points that consumers want,” Carmichael said. “If we can provide them the right product, the right price point and the right location, their top three biggest motivators, that’s our solution for filling that gap and getting sales absorptions up and continuing to get consumers more excited about the market today.”
She acknowledged that while there is data to support concerns that consumers would prefer to rent than buy these days, the ability to customize a home and make it their own is a powerful motivator for consumers.
One of the challenges builders will face this year is that 78% of consumers said that they just don’t need a new home. They’re satisfied with the home they’re currently in, but if presented with the right opportunity, they might consider moving.
“It has to be emotional. It has to be personal,” Carmichael stressed.
There are two categories to smart home technology, Carmichael said. One of the biggest challenges to builders regarding technology is how quickly it changes, but she stressed that “it’s crucial to focus on the merchandising and focus on what’s going to make their lives easier and what’s going to make their lives better.”
She added that actually providing that technology isn’t as important as making sure that the home is ready for consumers to add their own technology later.
In fact, offering technology solutions can make the service portion of builders’ offerings bigger than they really want.