Potential homebuyers this spring will be seeking lower prices, smaller floor plans, greener elements and features that are tailor-made to their personalities and family needs, say real estate agents and home construction experts.
“There is more of a focus on people getting houses that conform to their lifestyles,” says Kristal Kraft, a broker associate with The Berkshire Group, based in Denver. “For example, so many people want to be in ‘walkable’ neighborhoods, along rail lines or very close to work,” she says. “We’re also finding that values seem to go up in these areas.”
The McMansion of yesteryear is yielding to a more conservative-spending ethic and a downsized buyer demographic, says Ted Wilson, principal of Texas-based Residential Strategies Inc, a market research and valuation firm. The ongoing flight to quality seems to dovetail a flight from quantity, he says. “The era of who’s got the biggest house is over.”
Indeed, about 70 percent of homes purchased in the fall months sold for less than $250,000, according to data from the National Association of Realtors, or NAR. The median floor area of new homes, which peaked at 2,309 square feet in the first quarter of 2007, fell to 2,091 square feet in the second half of 2009, according to the National Association of Home Builders, or NAHB.
“Every recession in the last 25 years there has (resulted in) a space decline,” says Stephen Melman, director of Economic Services for the NAHB. The average lot size has also shrunk — from 10,000 square feet in 1990 to just more than 8,850 square feet according to a recent U.S. Census report. The extended $8,000 first-time homebuyers tax credit, now set to expire April 30, and FHA-backed financing further favors the continued purchase of modest homes this spring, Wilson adds.
A changing consumer demographic is responsible for changes in home-purchase patterns. Married couples, who constituted 68 percent of all home purchasers a decade ago, now represent 60 percent of all homebuyers today, according to the NAR. The fastest-growing buyer group, single women, purchased more than one-fifth — or 21 percent — of all homes in 2009, up from 15 percent in 1999. Single men bought 10 percent of all homes in 2009 compared to 7 percent a decade earlier.
“There’s no doubt people are regrouping into smaller homes,” Melman says. “But they are more interesting homes because people need them to be marketable so they can resell them.”
Builders are compensating for smaller spaces by eliminating the walls separating common living areas and replacing them with columns and archways to segment rooms, Melman says. Formal dining rooms have all but disappeared from floor plans in newer developments, added Kraft. Outdoor kitchens on patios and decks are growing in popularity among buyers in mild-weather climates as a “lifestyle” move that also expands living space.
Buyers also want homes with more miserly energy usage per square foot and other sustainable elements, illustrated by a heightening “green” marketing push from home marketers this year, Melman says. “There will be more energy-efficient appliances and windows and more recessed lighting.” However, buyers remain apprehensive about spending more than 5 percent above standard costs on green elements. “We aren’t necessarily going to see a crop of new windmills,” he says. Sixty percent of new-home buyers, compared to 39 percent of existing-home buyers, consider energy-efficiency a very important attribute, according to the NAR.
The housing product most affected by falling values this spring season will be the condominium. Last spring, a condo developer at a complex in Scottsdale, Ariz., auctioned off nearly all its units at an average price of $600,000, less than half the average price tag of $1.6 million at the height of the market. This year, expect similar bargains, agents say. Condo values remain highly unstable in “wipeout” markets like Florida and Arizona, Wilson says, but should be judged on a project-by-project basis in more stable markets such as Dallas. Realtors warn that condo values are typically the last to come back following a downturn.
While lower-price homes are selling, luxury homes are languishing on the market, and mid-price homes must be “priced right” to move, says Schahrzad Berkland, a San Diego Realtor and real estate analyst. The intentionally slow-to-surface inventories of bank-held foreclosures seem to be artificially sustaining values of existing homes in many markets, she says. Berkland and other agents believe the tax-credit program — broadened late last year to include a credit of up to $6,500 for relocating buyers — will help support the move-up market through the spring. However, because banks are holding back their foreclosures, buyers may not have the abundance of choices they would expect during that period, she says.
The aging baby boomer population and today’s smaller families will continue to shy away from maintenance-intensive properties in 2010, Melman says.
“Whether you’re 65 and your back hurts or you’re 30 with two young children, people don’t want to rake the leaves or mow lawns much anymore,” he says.