The Next Decade in Housing Set For Paradigm Shift

Changing demographics, home values and soured perceptions of home ownership are clues to a major change the national real estate market according to experts at the Urban Land Institute.  A study produced by John K. McIlwain, senior resident fellow of the Urban Land Institute (ULI) released Housing In America – The Next Decade, a forecast for the coming decade in housing.  Per Mr. McIlwain’s analysis, the return to the status quo of the pre-housing boom times is unlikely and probably gone forever.  As a large segment of the population ages (baby boomers) and generation X and Y come of age, housing demands will shift into a new frontier.  Here is a summary of the report:
Baby boomers (46 to 64 years old) in their prime earning years or are nearing retirement age, many will keep working out of necessity or by choice.   Many Boomers are stuck in large homes that they will struggle to sell and likely stay put awhile until values recover. Older Boomers who are able to move will not choose traditional retirement locations or senior housing, looking instead for more mixed-age living environments that cater to their active lifestyles. Suburban town centers with a walkable urban atmosphere will likely appeal to a majority of this group.  Because the recession has left many younger boomers with flat incomes and less home equity, their ability to purchase second homes will be greatly diminished, curbing prospects in general for the second home market. However, like their older counterparts, they will be drawn to more connected, compactly designed communities when they are able to switch houses.
Generation Y’s have a population of about 86 million, more than that of the baby boomers. Gen Yers place high value on community; on places (either virtual or actual) to gather and share information, ideas and opinions. As they enter the housing market, they will be far less interested in homeownership than their parents were when they were young adults.  For many, the recession tempered the interest of Gen Yers in buying their own homes and they will be renters by necessity or choice for years ahead.  Despite having smaller incomes, Gen Y’s will gravitate toward walkable, close-in communities, choosing isolated housing on outer edges only as a last resort because it is the most affordable. Green, “net zero” homes powered exclusively by alternative energy will have strong appeal to this group.
Already 40 million strong, the Immigrant total population of legal and illegal in the U.S. has an even greater impact when the children and grandchildren are included as a factor. 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 if the homes were in neighborhoods with a strong sense of community.
The long-term look at a recovery back to sustainable and ‘normal’ values appears to be a rocky and uncertain road.  The ULI estimates that values may only appreciate about 1-2% annually as the rate of homeownership projects to decline to 62%.  As the table below illustrates, at that pace it will take a long time indeed for prices to recover to the soaring (unrealistically) highs of 2006.
?Decline in Median Single-Family
Home Prices in Select U.S. – Metro Area 2007- 2009

Metro Areas    % Change
Phoenix    – 44.6%
Los Angeles    – 41.8%
Miami    – 40.6%
San Francisco     – 33.1%
Atlanta     – 24.8%
Washington     – 24.6%
Chicago     – 24.0%
U.S. Average     – 18.4%
Minneapolis     – 17.9%
New York     – 17.2%
Seattle     – 16.9%
Boston    – 12.0%
Denver     – 6.6%
Houston   +  5.3%
Source: National Association of Realtors, 2010
All this data points to a slow recovery (unless you live in Houston) but a glimmer of hope exists for the restructuring and re-thinking of the American home and the communities in which they reside.  An example of what future developments exists in Porter County Indiana with this featured Green Builder Magazine article about a new traditional housing development in Burns Harbor.