Dollars & Details:
While the housing market worldwide has been in a great recovery since the deep, dark pit of the last recession, new household formation has, until recently, been disappointing over the past few years. In other words, a surprising number of young people continued to live with their parents after graduating from school and generally coming of age. This has been due to many factors, including high student loan levels and an interest in saving money rather than spending it. Despite record low mortgage interest rates, young people have been reluctant to buy houses. This means that much of the housing recovery has been fueled by construction of higher-end houses, homes purchased by investors and construction of rental apartments.
Jack Plunkett has regularly stated in his speeches for several years that the Millennial Generation, (generally, those born between 1981 and 2002—roughly 85 million in America alone) are the vital future fuel for housing, and eventually will create vast demand for homebuilders. Today, these consumers, AKA Generation Y, are 15 years old on the young end and 36 on the older end. Clearly, this generation has a lot of consumption, investment and years of work ahead of it.
In the U.S., the Census Bureau has noted an important shift in the home buying market: first-time homebuyers are stampeding into the market after 10 years of modest purchases. Government analysts found that, during the first quarter of 2017, first time homeowners forming new households (854,000) was twice as high as the number of renters forming new households (365,000).
Trends and Theories:
This new household–new home purchase activity bodes well for homebuilders (think DR Horton, Lennar and PulteGroup), realtors (think Realogy Holdings—owner of brands like Century 21 and Coldwell Banker), furniture companies (think IKEA) and mortgage companies (think Quicken Loans and LendingTree). Tri-Point Homes, a publicly-held company with a deep understanding of starter homes, has seen revenues soar from $78 million in 2012 to $2.4 billion in 2016.
Some commentators have, for many years, been trying to convince us that Millennials won’t want to move to the suburbs. That isn’t the way it will play out for older Millennials willing to give up close-in entertainment and cultural opportunities for larger homes in which to raise families. A large segment of older Millennials state that they want a traditional home with a yard, good schools and low crime rates in their communities. This will push continued growth of the suburbs in many markets. At the same time, builders seeking growth in lower-end home sales will have no choice but to build far away from downtowns. Further distance means lower land and lot prices, and is the only way to deliver homes that entry-level buyers can afford. Today’s low prices for gasoline, and, in cities where commuters can access both light rail and bicycle sharing systems to get to work, will make the suburbs easier for commuters to endure. (Think Denver, where voters in 2004 approved a plan to add 121 miles of light rail, 18 miles of rapid bus lanes and 21,000 park-and-ride parking spots.)
Ranks and Results:
All the information you need about the global real estate and construction industry can be found at Plunkett Research, including our real estate & construction industry research center online, and our just-published, completely-updated Plunkett’s Real Estate & Construction Industry Almanac, 2017 edition.