The Wall Street Journal crashed the International Builders’ Show in Las Vegas last week, and all they have to show for it is some rare (if questionable) insights about demographic modeling . . . and closet space.
The general tenor of the conference, in true sin city style, was that bigger is better. Today’s buyers prefer walk-in closets and more square footage in general, according to the National Association of Home Builders survey.
New homes are getting bigger. The average size of the newly constructed American home has increased every year for the past five years, and is now up to a cavernous 2,679 square feet. Last year, 48% of newly built homes had at least four bedrooms and 22% boast a three-car garage, according to census data.
The builders also dropped some knowledge about a hot topic in the housing industry: the Baby Boomers. Buyers aged 55 years and older are expected to comprise 25% of the home-buying market in 2014. And this percentage is more likely to wax than wane in coming years, according to research firm Hanley Wood, LLC.
Their closest demographic competition is Gen Y, which remains either hesitant or unable to join the homebuying force. Even when they do, builders are nervous since research indicates Gen Y is 14% less likely to prefer buying a newly built home to a resale, according to Hanley Wood.
Overall, however, when the builders tipped their magic eight ball at the conference, it told them the “outlook is good” — and they believe it. Building is up overall in California. 2013 showed significant year-over-year increases in construction starts. Single-family residential (SFR) starts were up 25% and multi-family starts increased an impressive 39%.
But we’re concerned.
Builders are caught up in a situation of shadow demand right now. Increased speculator activity in the California SFR market has created a false picture of housing demand. In addition, their presence in the market for existing home sales has pushed an undue amount of end-users into the new home sales market after being exasperated by bidding wars and seller preferences for all cash deals.
The fundamental driver for builders is always population growth. And California’s population is always growing. Thus, California’s steadily growing population justifies at least a modicum of growth in constructions starts. In other words, builders have not over-proliferated new construction they way they did in 2004-2005. But the only thing that actually sells homes is demand. And right now, dear reader, demand is still in short supply.