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October 2016

Builders targeting growing demographic group for starter homes

Builders are targeting the rising number of affluent first-time buyers in expensive markets as prospects for entry-level homes.

This growing demographic group tends to be dual-income, college-educated buyers with at least a decade of work experience. Also, compared to their parents, they have delayed having children. Nearly one-quarter of married couples (23 percent) had college degrees in 2014, nearly twice the number (12 percent) in 1990.

John Burns Real Estate Consulting forecasts 5.2 million more homeowners over the next decade, including a surging number of people who turned 20 in the last decade who may be ready to purchase a home in the next decade.

"Knowing exactly what this buyer wants and building the right product in the right location is crucial for success," emphasized Adam Artunian, a senior manager at the Burns firm.

Among design elements he believes builders should consider are:

  • High-density detached (with private outdoor spaces), which he says are generally more desirable for young families and allow for lower HOA dues.
  • Well-designed smaller homes.  Entry buyers will trade of size (to some extent) for location and lifestyle.
  • Three-story homes - if done correctly. Open layouts with lots of light are "musts."
  • Energy efficiency can yield significant savings. Artunin recommends including "being green" as a standard feature and marketing it.
  • Price below the FHA loan limit as its low-down-payment options appeal to many buyers.
  • Private, functional outdoor spaces, such as pocket yards, side yards, and rooftop decks, are crucial.
  • Minimize homeowners association dues and infrastructure bond payments, recognizing that entry buyers are payment sensitive and will trade a lower payment for fewer community amenities.