Home builders have been largely focused on chipping away at the nation’s housing shortage, but there is a real opportunity for builders in designing homes for future generations and their shifting preferences and needs, according to an interview with Cotality chief economist Molly Boesel.
Younger potential homebuyers face a continuing affordability challenge, with housing prices rising and mortgage interest rates reaching 7%, making monthly payments less affordable. Many of the Gen Z cohort are just getting out of college and starting their careers, not looking to buy a home. But for those who are, smaller, more affordable homes will be appealing, Boesel said.
“The homeownership rates are pretty low for that age group,” said Boesel. She noted this age group will initially choose multifamily rental properties.
Affordability is also important for older Americans, many of whom are on fixed incomes. Increasing insurance costs and property tax increases can be especially difficult for them to manage. In some cases, these rising costs can price older Americans out of their existing home.
Ninety percent of new households over the next two decades will be headed by someone over the age of 65, said Boesel. In addition to affordability, older Americans are likely to be thinking about where they want to age, whether that means selling their existing home, cashing in their equity, transitioning to renting or finding a home with access to more services.
Meanwhile, Millennials are having fewer children than other generations, so in theory, they may need less space. In addition, the pandemic-driven trend of prioritizing in-home office space may slow as workers increasingly return to the office.
“With home prices increasing, if you don’t need the space, you might not want to pay for it,” said Boesel.
These demographic shifts may spur builders to focus less on large two-story homes and more on smaller, single-level homes or multistory townhouses that can accommodate more properties in a smaller area, said Boesel. Townhouses have become one of the most common building structures in recent years, appealing to those who don’t mind having multiple levels in their home to get more space.
An expansion of multigenerational households will also drive builder strategies for homeowners who have an adult child or aging parent living with them. That could drive demand for larger homes with plenty of space as well as extra bedrooms and bathrooms, said Boesel.
New Cotality data found that the size of new homes fell 10 square feet per year over the past half decade due to supply issues, land prices and regulation. Home prices, though, are forecast to rise 4.9% year-over-year.
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