Future Housing Trends to Expect

The housing market has been a roller coaster ride over the past ten years as homes in many areas enjoyed unprecedented price appreciation during the first half of the last decade and unbelievable price depreciation during the past few years.  Low interest rates and easy lending standards prior to the collapse of the housing market led to a situation where many people became homeowners that weren’t in a financial position to sustain their payments and we’re likely to see foreclosures, short sales, and other housing problems continue for at least the next few years.

With a new decade starting, it’s a natural time to look at the trends in the housing market and how the changing demographics of Americans will shape these trends in the future.  Here are some trends to expect.

Baby Boomers Will Want to Sell: The baby boomers are entering retirement in waves over the next several years and many of them either haven’t saved enough to fund their retirement or they have seen their portfolio values dwindle to the point that they need to access the equity in their homes to meet their cash needs.  Many people entering retirement like the idea of downsizing as they need less space after their children have moved out on their own.  Coming out of a recession, many retirees will be looking for value in smaller homes located in attractive retirement communities.

Echo Boomers Will Want to Buy: The Echo Boomer generation is actually quite a bit larger than the Baby Boomer generation.  These are the children of the Baby Boomers and they are just entering their peak earning years.  This will mean greater entry into the housing market and the flow of buyers is going to be critical to the recovery of home prices.  If we look at population growth alone, there should be nearly 6 million homes purchased every year.  During the housing rut of the past few years, home sales were annualizing at a pace just above four million units a year.

Homes Will Be Smaller And More Energy Efficient: At their peak in 2006, the average size of a new home being built in the US was more than 2,400 square feet.  New homes being constructed today are already an average of 200 square feet smaller than just four years ago.  Homes are also being built in a much more energy efficient manner due to attractive tax credits and more affordable “green” building supplies.  The demand for new homes is greater in areas where environmentally friendly materials are being used.

Financing Will Be More Responsible: For years, the name of the game was getting a payment as low as possible to support a home as expensive as possible.  Interest only loans and adjustable-rate mortgages became the norm rather than the exception to the rule and the model proved to be unsustainable.  Mortgages will be granted much more selectively in the future and new home sales will be made primarily by owners in a financial position strong enough to support their moderate mortgage payment.

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