As baby boomers retire, leaving the smaller Generation X as the primary purchase client, the real estate and mortgage industries must prepare to target a radically different population.
After enduring a relatively long stretch of market volatility, we finally see a return to some normalcy in most housing markets. Refinancing is no longer the workhorse of the mortgage product mix, but it is hanging in there so far.
For the first time in possibly six or seven years, mortgage and real estate firms can start to at least think ahead rather than struggling to keep their heads above water with each wave of foreclosure or tremor to hit the market. So, what’s next?
The purchase market for mortgages is relatively stable right now. Maybe that’s pent-up demand — maybe not. However, I firmly believe that we will face an unusual gap in the market soon.
The probable market gap
Right now, it’s likely we’re seeing people from Generation X and, to some degree, the baby boomer generation exercising their purchase power in the real estate market.
But as the baby boomer generation ages, they’ll be looking to downsize — perhaps even rent. We know that Generation X is a relatively small population. Thus, the market for purchase would appear to be shrinking.
In the past, as one generation faded out of the housing market, the next emerged. But so far, that doesn’t seem to be the case.
Where are the millennials?
We’ve seen numerous authors and pundits speculating on the answer to that question: They’re buried in financial aid debt from college.
They’re living at home. They’re behind when it comes to gaining their purchase power. They don’t believe buying a home is the American dream anymore.
Whatever the truth might be, it’s imperative that we as an industry find an answer to that question. We must also determine what they’re looking for in a home.
Assuming millennials continue to avoid the purchase market in droves, I can easily see a simple scenario in which those in first homes or beginner homes won’t be able to move up to larger houses because of the struggle to sell their existing homes to, ostensibly, millennials.
In turn, the baby boomers and older members of Generation X will struggle to downsize into homes more suitable for their retirement years. They won’t be able to sell their larger current homes to those unable to upgrade from their first and beginner homes.
We can fill this potential gap in the market in two ways: Learn how to market to, and create products for, the millennials effectively. It’s extremely difficult to paint with a broad brush the characteristics of an entire population based mostly on when they were born.
What millennials want
Nonetheless, there are discernible trends. We know, for example, that millennials tend to be more environmentally conscious than their predecessors.
New homes will need to be built, and existing homes refurbished, in a “green” fashion to hold greater appeal for this generation. We know that location is important to millennials.
They don’t want long commutes (generally speaking, of course). They want to be near the action (whatever one might consider the action to be).
Accordingly, we could see more building and refurbishment in downtown areas and inner-ring suburbs. We’ve seen that this generation has been substantially affected by the Great Recession. One early indicator is that debt has become a four-letter word for them — not a helpful predisposition when exposed to mortgage and real estate marketing.
Realtors, lenders and all other firms in our industry will need to become more conscious of what the millennial, in general, seeks when it finally becomes time to buy a home. It will likely be dramatically different than what Generation X or the baby boomers have sought in the past.
We will need to learn to market differently — authenticity rules. Perhaps we will need new product mixes, and, to the extent we can, we might need new products.
A second target population that might help us bridge the market gap is that of the new American or immigrant. The trend of increased immigration continues — no matter what is happening on that issue.
Again, this is a target population that could vary widely and which certainly will differ in some regards from previous homebuying generations. Early on, it has been suggested that multifamily housing should be in large demand for the family-oriented new American.
Not every immigrant speaks English — our marketing materials will have to take that into account if we wish to help them purchase homes.
The mortgage and real estate industry is facing what could become a challenging purchase market in the coming years. We can meet that challenge and succeed, but not by doing business as usual.
From all perspectives in the industry, it is time now to prepare for what will be a dramatically different target customer.
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