How life stages affect decisions about housing

Life stages, including cohabitation or kids leaving the house, can trigger different housing choices:

Unmarried. Singles are more likely to rent and live in locations that are closer to entertainment and employment, which is why these areas are more in demand today than usual.

Togetherness. Cohabitation has been on the rise in recent decades, but homeownership rates for these couples are much lower than rates for their married counterparts.

Marriage. Marriage often increases the desire to own a home; many location and housing choices depend on income and nearby family.

Children. The addition of little ones makes owning a home feel like a necessity for many, given the desire for yards, good schools and social circles for the kids.

Children moving out. An empty nest often results in lifestyle changes, including different home-size preferences, social circles and floor-plan needs. Locational preferences also begin to shift.

The first two stages suggest a decrease in homeownership, the next two based around marriage and kids involve the more traditional American Dream, and the last seems to revert to the first two when more options are available. Are we headed toward a housing market where owning a home is primarily about kids? This has always been a key factor in moving to and living in the suburbs, which is closely linked to homeownership.

The flip side of this is to ask how real estate agents and builders will respond to these life stages. Can they afford to target each stage with specialized housing? Are there ways to have more flexible housing that can transition as the lifecourse changes?

Watch for more personal appeals from home sellers

Personal appeals from home sellers may be the next big thing in real estate:

Watch for this to take off in home listings: Sometimes, in a bidding war, you hear about homebuyers writing love letters about themselves — words that explain what wonderful families they have, how they’re crazy about the house, etc., in order to persuade sellers to choose them over other bidders.

Now comes a vaguely comparable feature for sellers: Coldwell Banker Real Estate recently revised its listings to allow home sellers to post personal stories, photos and videos about their homes, with the aim of making their listings stand out. Among the first to take up the offer were actors William Macy and Felicity Huffman, who explained their affection for the house they’re aiming to sell in Colorado: “Felicity and I love to hike up toward Sopris Mountain, right out the back door. … We put a secret door between the kids’ bedrooms, which has been a huge hit.” The brokerage says that all of its seller-clients can add their own content to their listing pages, although it must be approved by their agents.

Positive emotions seem to be the key to such appeals. If the opposite party is touched, the home can be sold for more or bought for less. It all may seem cheesy but selling and buying a home can be a very emotional process. As economic sociologists and others have found in recent decades, such decisions are not just about dollars and cents but often include complex emotional reactions. Buying and selling certainly counts as an emotionally fraught process from the amount of money involved to the transitions involved (changing communities, jobs, etc.) to the commonly-invoked American ideals of “making it.”

I would love to see some data on this: how much does an effective letter change the price? And, on the flip side, how might a poorly worded letter damage the party who wrote it?

Lowest percentage of first-time homebuyers since 1987

First-time homebuyers are having a difficult time participating in the real estate market:

Just 33% of primary residences sold this year were purchased by first-time buyers, down from 38% last year to the lowest level since 1987, the National Association of Realtors reported Monday.

The NAR says that the first-time-buyer share of home sales has typically hovered around 40% since 1981.

The headwinds facing young buyers are well known: higher student debt, rising rents and a weaker job market have made it harder for would-be buyers to save for a down payment and qualify for a mortgage, particularly in a lending environment where banks are much less willing to overlook credit blemishes or spotty incomes…

The NAR survey also found that people are staying in their homes longer than in the past. The median age of tenure–that is, the amount of time a typical homeowner stays in one house–rose to 10 years in the most recent survey, from six years in 2007.

This isn’t just about not having enough cheaper homes at the lower end of the market; this is also about getting people into the patterns of buying homes and then moving to bigger homes as their families and incomes grow. While there is still evidence that many young Americans want to purchase homes, being able to actually participate is a crucial first step.

Nearly 50% drop in first-time buyers leads to bigger American homes

New American homes are now over 2,600 square feet and this is partly because there has been a big drop in first-time buyers:

The economist says first-time buyers accounted for only some 16% of last year’s new-home sales, or about half of their usual roughly 30% market share.

At the same time, he says, builders are finding bank loans, developable land and experienced construction workers in short supply. “You had a well-oiled construction industry [during the early 2000s housing boom], but when there was a downturn, many people left,” Melman says.

The expert says a shift to high-end homes has historically happened after every U.S. recession or housing bust and lasted for a few years.

So he expects newly built homes to keep getting larger, fancier and costlier for a while — albeit at a slower pace over time.

More evidence that the numbers about the increasing size of American homes is misleading. On one hand, it looks like the American appetite for more square feet continues unabated; household sizes shrink over time but homes keep getting bigger. Have to have room to spread out or to store all our stuff. Yet, the housing market has changed quite a bit since the early 2000s where the above story might have been more accurate. Today, home sizes are driven by a market with fewer first-time buyers, builders who are looking for higher-end profits, and lenders who have pulled back a bit and restricted lending to people with plenty of wealth.

Using video game technology to give house tours “down to the millimeter”

The same technology used for Halo can be harnessed to give virtual home tours:

A new Seattle real-estate brokerage called Surefield hopes to improve the home-shopping experience by harnessing the power of video-game engines and computer-vision technology. Its service includes an online, 3-D, photorealistic model of the home which potential buyers can move through virtually…

“We want to give the homebuyer the ability to inspect down to the millimeter,” said Surefield CEO David Eraker, who in 2002 co-founded the real-estate website Redfin…

And by helping buyers become more selective about which homes they physically tour, home sellers “don’t have to live on eggshells to keep it looking like a hotel every day,” said Surefield COO and broker Rob McGarty, who led Redfin’s real-estate operations before he left in 2010…

Surefield’s technology actually uses a video-game engine similar to one used in modern games like Halo, where a character moves through a space in “first-person shooter mode.”

The company’s chief technology officer is Aravind Kalaiah, a Bay Area visual-computing engineer who led Nvidia’s development of a breakthrough technology in graphic processing.

Sounds like an interesting product that hopefully goes far beyond the picture slideshows available now, especially if a viewer could pan or zoom in and really see what the space was like. This also acts as an elaborate screening device for home listings. With this, potential buyers can get even more information about available properties and do more work on their own without middlemen. Yet, the buyer still needs a real estate agent or broker to get into the homes they are really interested in and relatively few buyers will want to buy a home without seeing it in person.

I wonder how this also relates to research on consumers having more choices. Imagine you could take these virtual tours of dozens of available homes. The consumer gets to see lots of options and can do so very quickly. However, the research on choice suggests giving people more choices tends to reduce their satisfaction as they are more aware of making the “perfect” choice. They might find the home choosing process more to their liking but does it lead to more satisfaction with their home in the long run?

Don’t let your McMansion turn into a financial McPrison

A real estate firm argues buyers shouldn’t buy a home that could turn into a McPrison:


The sprawling McMansion that someone said you can afford may quickly turn into a McPrison when all of your money is locked up in it. There are lots of home affordability guidelines out there. Start with this one:

  • Don’t spend more than 300% of your gross household income.
  • Another is to pay no more than 150 to 200 times the monthly rent of a comparable property.
  • All of that said, don’t buy a home unless you plan to spend at least seven years in that area.

Some conservative guidelines for buying a home, particularly from those whose livelihoods depend on moving houses. Yet, the contrast between a McMansion and a McPrison is interesting. According to this advice, the main negative of a McMansion is that it can cost too much. The McMansion can appear to be a good thing that ends up trapping the homeowner. This has been a common argument after the economic crisis: too many people and lenders overextended themselves in purchasing and enabling McMansions. Part of the definition of McMansion from Investopedia reinforces this idea:

Many McMansion homeowners live beyond their means as mortgages on these monstrous properties may be 100% mortgages, interest-only mortgages and/or amortized over 40 or more years. The cost of utilities and maintenance in a larger home are also more significant, as is the cost of commuting from the distant suburban settings in which these homes are often located.

Two quick responses:

1. Of course, non-McMansions can be pricey as well depending on their size, location, and design.

2. Ultimately, this ignores the numerous other critiques leveled against McMansions (i.e., you could be trapped by a lack of community in McMansion neighborhoods) and focuses on the financial implications. If the homebuyer wanted a McMansion and could financially make it happen, there is nothing on this page to suggest the realtors would disapprove.

Chicago area homebuilders, buyers expanding into cheaper Indiana

Some homebuilders and homebuyers are seeking out locations in northwest Indiana that are still within the Chicago region but offer lower costs:

Casting aside long commutes, higher home prices and often mind-boggling property taxes, some Illinois residents are branding themselves as Hoosiers, and more Chicago-area builders are thinking of expanding into Lake County, Ind., to capture that business. Their arrival will change a housing market dominated by local companies for generations and prompt municipalities to act to make sure the growth comes on their own terms.

Three years ago, the region caught the attention of D.R. Horton, the nation’s largest homebuilder by revenue, and it began buying lots in established subdivisions and building homes. Finding success, the Fort Worth, Texas-based company this spring is seeking the zoning necessary for it to move forward with a deal to acquire about 90 acres of former farmland on the east side of Interstate 65 in Crown Point for a 200-home subdivision…

Between 2007 and 2011, a net total of more than 5,600 people relocated from Cook County to Lake County, Ind., according to census figures. More than 55,000 residents of the northwest Indiana county worked in Cook County in 2012, according to state figures obtained by Metrostudy, a housing consulting firm.

Commuting may become easier in years to come. Last week, Illinois and Indiana signed an agreement regarding the development of a 47-mile toll road, the Illiana Expressway, that would connect I-65 near Lowell, Ind., to Interstate 55 near Wilmington.

A few quick thoughts:

1. As the article notes, this might require Illinois residents to rethink their stereotypes of Hoosiers. I enjoyed living in the South Bend area during graduate school but I do remember being struck by the number of people who drove pickup trucks and smoked when I first moved there.

2. There are certain areas of the Chicago region that still have plenty of room for growth: northwest Indiana as well as south and southwest of Chicago in Illinois (roughly between Plainfield and Chicago Heights).

3. This article focuses on areas further in Indiana like Crown Point. According to Google Maps, driving from Crown Point to State and Madison in Chicago is just over 47 miles. That is quite a trip.

4. How much does the presence of Gary affect the willingness of people to move to northwest Indiana? Despite efforts to revive Gary, it still has a negative reputation. Imagine Gary and the surrounding area were nicer suburbs – how many people might want to live that close to Chicago as well as be near the shores of Lake Michigan? Instead, there is a community known for industry, depopulation, and a poor quality of life.

Bad options: “grand McMansion” vs. “cookie cutter townhouse”

This description of a Season 87 House Hunters episode suggests the homebuyers have two less than stellar options:

Ryan and Stacey have $300,000 to buy their first home outside Baltimore, but they want very different things. He dreams of a grand McMansion, but she wants a cookie cutter townhouse with a uniform look. And since they’re both a bit stubborn, neither one is willing to give an inch. Can they find a place that they can agree on, or will this house hunt become a Battle in Baltimore?

This sounds like a typical House Hunters episode: the couple have different visions on what they want and perhaps they will compromise on a third option that gives them each a little of what they want. But, the choices set up here are interesting. McMansions are disliked by numerous critics. Does Ryan himself say he wants a McMansion or is this description using this as shorthand to describe a large suburban home? Then, is a “cookie cutter townhouse” a superior alternative? Critics of McMansions might note that at least townhouses are denser developments and tend to not be as large. Yet, townhouses aren’t usually known for their fine architecture and a uniform look doesn’t help anyone distinguish themselves. Both McMansion owners and critics tend to buy into the idea that a home is supposed to express yourself – though they disagree on what should be expressed and how – and a townhouse with this sort of description wouldn’t fit the bill.

In new homes, American homebuyers want quality, space, and to disconnect

A large online survey of homebuyers reveal several big things they are looking for in a new home:

Again and again, they told us they were looking for quality more than quantity, and they said that, even when they were looking for a larger home than the one they currently have. One major attitude that was apparent was this huge desire to disconnect when they come home.

This seemed to show up in their interest in a house with an indoor-outdoor connection, where they could entertain and move easily from kitchen to the outdoors. Another way it showed up is, well, I’m not saying that anyone should disconnect their wireless (service), but this expressed need to disconnect suggests a huge trend for making the master bath feel more like a spa. Builders have to ask themselves, how do we help them disconnect from stress every day? Consumers told us they love a big shower but don’t lose the tub. We asked, “But will you use the tub?” and they said, “Um, maybe not much.” But they want it to be there — 65 percent said they still want a tub in the master bath.

Q: Isn’t that also sort of the way they feel about the dining room — that room that builders have said for years that nobody wants or needs any more?

A: They still want a formal dining room. They want their holiday dinners where they can expand out to 10 or 12 people. A lot of builders have been building houses with just a great room (that could accommodate a large dining table), but 59 percent want a great room and one or two more formal spaces.

The quality and space concerns are not too surprising: they likely want lasting homes that will retain their value and are looking to upgrade to a bigger home. More interesting to me was this desire to disconnect, to feel like their home offers a respite from the outside world. This was one of the impulses behind the separation of work and home life in the modern era: as the world industrialized and cities grew, people started viewing homes as refuges. This put more emphasis on the single-family home as well as on the nuclear family, promoting more private lives. While these private lives have been criticized from a range of people who don’t like the drop-off in community life or the lack of civic engagement (ranging from Bowling Alone to New Urbanists), this desire for private retreats still appears to hold true. What the retreat might look like could take multiple forms – from the room centered on the giant TV to a spa-like bathroom to a backyard oasis to a man-cave – but the money goes toward making sure residents can put off the outside world just a little longer.

Really low mortgage rates may be limiting mobility

Here is how low mortgage interest rates may be restricting the mobility of lots of homeowners:

But what does the uptick mean for those homeowners who did take advantage of ultralow rates? According to researchers at DePaul University’s Institute for Housing Studies, it has created a new population of homeowners who are seemingly stuck in their homes.The housing crisis created a large class of people who couldn’t sell their homes because they were underwater, owing more on the mortgages than the properties were worth. But in addition, another class of homeowner has formed, those who took advantage of the low rates and would have to give them up if they sell their homes.

Compounding the increase in interest rates is that the home price gains seen in Chicago and other markets last year are moderating. As a result, homeowners who refinanced, and those who bought homes at the low rates, could see smaller home price appreciation going forward. Yet even if they buy a house for the same price as the one they are selling, it will cost them more because of the higher interest rates. That scenario could affect their mobility and, as a result, the overall number of homes that change hands, the study concluded.

Similar scenarios have played out in the past, according to the researchers, who noted that the average monthly rate for a 30-year, fixed-rate mortgage rose from 10.1 percent in November 1978 to 17.8 percent in November 1981. An earlier study of that period found that every 2 percentage-point increase in rates lowered household mobility by 15 percent.

Generally, lower rates are seen as good things for homebuyers as it gives them more purchasing power. However, if rates then go back up, having a lower interest rate may not help in the step up to the next more expensive house. It will take some time for the market to balance out. Although it is unlikely there will be such a swing like in the late 1970s/early 1980s, the housing market is still quite delicate in many places and even small changes could lead to bigger disruptions.

All that said, higher rates of mobility are assumed in the United States. In order to have a thriving economy, workers need to be able to move to where they can find economic opportunities and moving up the ladder of houses (starter home, family home, retirement home, etc.) keeps the housing industry going.