As we’ve been reporting fairly regularly, price matters. The more expensive a home is, the fewer the buyers who can afford even looking at a home. Yes, this would seem to be obvious to even a casual market observer, but if that’s so, we could actually be in a long term national trend that’s worth pondering, at least for someone whose profession is to sell homes.
According to Stephen Kim of Barclays, and several other national analysts, ‘a long term trend is currently underway that theorizes that a wave of empty nesters is seeking to downsize, and now that the market has recovered from the crisis of 2006-2009 they are planning to do so in greater numbers. If a large number of boomers want to sell their suburban expensive home at the same time, we are going to see an imbalance of supply and demand. Today’s younger buyers appear to prefer density and proximity to urban facilities like shops, restaurants and entertainment. Far fewer of them are playing golf. In any case, can enough of the younger generations afford to live in suburban luxury even if they wanted to? The “boomers” are the ones with the equity. Gen X (early 60’s to early 80’s) was badly hit by the foreclosure wave and many of the millennials are still deciding what they want. We are seeing a rise in discretionary renting, where older homeowners sell their large homes and move into smaller rental homes. They appear to prefer upgrades and amenities to square footage. They are probably using their home equity as a source of funds to enjoy their retirement.’
” ‘…We are seeing a rise in discretionary renting…’ “
If the above is true, it certainly makes for interesting discussion. I think it could definitely have an impact on builders in their consideration of the size of homes to build in their communities. I think one possibility is that the large suburban luxury home becomes at least tri-generational that will fit boomers, boomer’s parents, X, and maybe even Y (1982-2004) generations. In order to accomplish that, major remodeling will need to happen, which will reinvigorate the construction industry from new to re-new.
In the Phoenix metro area, we’re currently seeing many active listings above $500,000 with (according to Michael Orr of the Cromford Report) an average sales price per square foot of $232, down from $237 in August. Unlike the median price, the more expensive homes affect the average sales price more than the median sales price. This, according to Orr, reflects the oversupply in the higher price ranges. If the higher priced homes don’t fetch higher dollars, owners may keep reducing the price to get it sold, or rent it out living in smaller accommodations or retirement oriented communities.
In order to afford the more expensive homes, higher incomes are needed, be it with those moving to Arizona, or higher paying jobs that are created in the state. We’ve certainly seen the latter occur, but not so much the former.