Major changes in the economy have created a paradigm shift in the housing industry. The traditional American Dream of home ownership is being dismantled.
Before the housing bust and Great Recession, most Americans dreamed of owning a home with a big yard where they could raise a family and eventually retire and be comfortable. The inability to secure financing, a sour job market and crushing student loans are creating big changes in the way we live. The American Dream of the last 40 years is unattainable for many Americans today due to the economic burdens we still face and the changing demographics of our society.
The economic burden on the housing industry continues as foreclosure problems persist. Many families are financially trapped in their homes with little prospect of escape. They are finding it very difficult to sell.
Pre-existing home prices have recovered somewhat; however, they remain 40 to 60 percent below true market value in most markets. Many home owners who are financially trapped in their homes are undertaking large remodel projects to accommodate lifestyle changes, wants, desires and changing trends. Unfortunately, that adds to the financial problem. A home that is financially underwater falls deeper in the hole once the renovation has been completed. In the long term, most of these homes will be sold at a loss.
One of the big changes occurring in the housing industry is the multi-generational home. Whether it’s adult-aged, economically strapped children living with their parents or senior parents with failing health living with middle-aged children, the need for homes to accommodate multiple families is increasing.
The key indicator of this growing trend is household formations. Since the 1970s, America has averaged about 1.1 million new households per year. But since the Great Recession, the average has been less than half a million. Even worse, in the last half of 2013, household formations were practically nil.
The housing model for a multi-generational home needs to include bedrooms with connecting bathrooms and larger common areas in the kitchen and den areas. These types of floor plans allow for some privacy and separation from others in the house.
Another big factor affecting the housing industry is the approaching silver tsunami. The number of baby boomers retiring each year is growing. Many of these new retirees have worked all of their lives to buy the home of their dreams. Whether it is a larger garage, a tricked-out walk-in closet or a man cave, they want what they want. Builders will have to abandon the cookie-cutter house plan and be willing to modify plans to accommodate a group of people who are redefining the concept of retirement and making new demands for the type of retirement home they want to purchase.
Lastly, affordability is a huge driver in the changing housing industry. Many working people cannot afford the home prices in today’s market. They don’t qualify for the financing. There must be a better product that enables young couples, single parents and lower-income households to afford a home. Home and lot sizes will have to be reduced to allow this first step in the housing ladder, which will require changes in both government regulations and the building industry.
Big changes are coming — the paradigm is shifting. We may not be able to control it, but we can and must adapt.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” Radio Show heard every Monday at noon on My790AM WLBE in Leesburg.