FEATURED ARTICLE
The New Path Toward Tomorrow’s Real Estate Profits
SIZE MATTERS Consider home sizes. Bigger homes were something treasured in the past, evidence of status and accomplishment. Today such prop- erties hold less allure. The Wall Street Journal reports that before retirees were rushing to build elaborate, five or six-bedroom houses in warm climates, fueled in part by the easy credit of the real estate boom. Many baby boomers poured millions into these spacious homes, planning to live out their
golden years in houses with all the bells and whistles. “Now,” said the Journal, “many boomers are discovering that these large, high-maintenance houses no longer fit their needs as they grow older, but younger people aren’t buying them.” Despite public preferences, large homes continue to dominate the marketplace. Homes with less than 1,800 sq. ft. now represent 22 percent of all new home construction, down from 40 percent in 1999 according to the Urban Institute. And big homes? They’ve gone from 32 percentof the market to fully 50 percent. The market continues to con- struct the very products large num- bers of buyers simply don’t want. And, the sales results are what you would expect. In 1982, we had a national popu- lation of 232 million people versus 327 million last year. Given such a huge population increase you might expect that new home construction would soar. However, that’s not the case. According to The New York Times , the U.S. produced 1.2 mil- lion new housing units in 2018, the same number we built in 1982. Where’s the opportunity? The housing stock is increasingly out-of- step with population needs and pub- lic preferences. The opportunity is in smaller homes. As Zillow reported in 2018, during the past five years, the “people who own starter homes have seen their equity grow by 44.4 per- cent, while owners of top-tier homes have gained 26.6 percent.” ARE MCMANSIONS DEAD? There sure are a lot of big houses. CNBC defines large single-family homes as those with about 2,900 square feet to 4,000 square feet. They represent 25 percent of all listings on Realtor.com but “receive 12-45 per-
cent less views on Realtor.com than the typical home in each market.” What can we do with the invento- ry of larger homes now in place? There will always be someone who wants a bigger home, especially if less demand means a lower cost. But may- be the larger properties we see today should be viewed as something else. As a result of finances, culture, preferences, and convenience, fam- ilies are increasingly living togeth- er. Roughly 64 million people lived in multi-generational households as of 2016, a number that grew from 51.5 million in 2009 according to the Pew Research Center. Big houses with few people are expensive to finance, heat, cool and maintain. Such homes can make economic sense if two or three family generations can live in them together. Each family unit can have space and privacy and divid- ing costs among more than one or two bread-winners can produce impressive economies. There can also be built-in baby sitters, adult caregivers, and shared meals.
W e tend to think of real estate as permanent and perpetual. The stuff beneath our feet is always there, the pyramids haven’t moved in thousands of years, and people in- variably want to live indoors. So, why worry about real estate change? The answer is that real estate
actually does change. It’s not so much that someone has invented better dirt, but rather the idea is that societies evolve, creating new opportunities in the process. As a country, we’re becoming more urban, older, increasingly single, and greener. We spend more time online.
Both the tax code and our personal values are in flux. There’s a lot going on and each transition represents an opportunity. A number of interesting changes are now underway – evo- lutionary trends that suggest new market patterns and the potential profits that go with them.
As a country, we’re becoming more urban, older, increasingly single, and greener. We spend more time online. Both the tax code and our personal values are in flux. There’s a lot going on and each transition represents an opportunity.
6 think realty housing news report
september 2019 7
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