4 U.S. demographic shifts for the coming years will become major forces in the housing markets of both the US and their 2nd home countries. According to Housing in America: The Next Decade, a new research paper authored by John K. McIlwain, senior resident fellow, Urban Land Institute/J. Ronald Terwilliger Chair for Housing, emerging trends in demographics and consumer behavior will result in a residential market very different from that before the recession.
The effects of widespread foreclosures and their drain on market values, and the loss and need to re-establish a private market residential finance system, will be felt more in the U.S. But shifts in housing demand triggered by baby boomers, their children, and by immigrant households will be felt offshore.
Currently, there is an unprecedented number of foreclosures and short sales on the market, and more homeowers are choosing to walk away from the mortgage rather than sustain a large financial loss through a short sale. This suggests a fundamental change from the long-held notion of homeownership as the ultimate American Dream. McIlwain explains that this disillusionment over homeownership – as a way to build wealth – could persist for decades to come, as those entering the housing market will be more apt to rent longer, and to place more emphasis on buying for shelter rather than investment purposes. The shift away from using real estate as a means to build an investment portfolio could be felt throughout the region.
The demographic waves identified by McIlwain include:
1. Aging Baby Boomers (55-64) will continue to work, many will stay in their homes until values recover, and those who can move or invest in a 2nd home will opt for mixed-age environments which offer active lifestyles. This group has lost a very large part of its wealth and ability to invest.
2. Younger Baby Boomers (46-54) also will not be able to sell their homes at what appreciation they intended, and may not move as quickly as in past years. Their ability to purchase 2nd homes will be greatly diminished because of flat incomes and less home equity. They also will be drawn to more compact communities that emphasize connectivity.
3. Generation Y, actually larger in number than the baby boomers, has grown up with computer technology. They value community, places – either virtual or actual – where they gather and share information. They are less interested in homeownership than previous generations, have smaller incomes, and want walkable, connected communities which are Green.
4. Immigrants (in the US), which already number over 40 million, will have a huge impact, especially when extended families are included – children, grandparents, grandchildren, etc. The tendency of immigrants to cluster, and to live in multi-generational households, suggests that they would prefer larger homes if they could afford them and in neighborhoods with a strong sense of community. Any investment in 2nd homes would mirror the ‘cluster’ concept.
All of these 4 groups share the desire to live and work in more pedestrian-friendly, transit-oriented, mixed-use environments. McIlwain concludes, ‘The suburban century is over. This is the urban century.’
Many will still be able to afford vacation home whole ownership, or fractional ownership shares in vacation destinations, and investments in a property for future retirement. But the numbers of those buyers who will be from the US – according to this study – will dramatically decrease, and their interests in the types of properties considered, with what is left of their disposable income, will – or has already – definitely change. Read more on McIlwain’s report at RisMedia, and visit the Urban Land Institute to learn about the global real estate community.