Michael Jay, a New England radiologist who retired this year at age 64, traded heating bills and Massachusetts state income taxes for a three-bedroom house on a Florida golf course.
“If you don’t need a big Northeast job, then there’s nice living in other parts of the country,” said Jay, who in September moved with his wife, Susan, into a 55-and-over community near Tampa.
Southwest Florida is the fastest-growing U.S. market for new houses, a sign that retirees such as the Jays are poised to buoy growth in the country’s depressed homebuilding industry next year. With new-home sales running well below historic levels, older Americans who have had decades to build wealth and credit histories are helping to prop up demand while younger people put off homeownership.
“Everybody’s best-selling projects are those catering to elder buyers,” John Burns, a housing consultant based in Irvine, California, said in an interview. “It’s really going to happen all across the country.”
Sales of new single-family homes are expected to rise 16 percent to 510,000 in 2015, according to the median estimate of 25 economists and housing analysts in a survey conducted by Bloomberg News. That would be an acceleration from this year, which is expected to show a 2.6 percent increase from 2013, based on the survey results.
Housing starts, including multifamily projects, will climb about 15 percent to 1.15 million units, according to the estimates, which were submitted from late November through last week. Builders broke ground at an annual pace of 1.03 million in November, a 1.6 percent decline from a year earlier, the Commerce Department said yesterday. Annual starts haven’t surpassed 1 million since 2007, before the real estate crash accelerated.
Builders have increasingly shifted away from starter homes and are appealing to wealthier buyers, with the median price of a new U.S. house reaching a record high of $305,000 in October. Builders such as Shea Homes, Lennar Corp. and PulteGroup, whose Del Webb business is the largest targeted to older buyers, are depending on the segment’s continued growth.
“The active-adult market, in our case served through Del Webb, is extremely well-positioned to take advantage of a giant population of buyers that are only getting bigger, combined with them feeling better about the housing market,” PulteGroup Chief Executive Officer Richard Dugas said in an interview. “It’s a sweet spot.”
Even with next year’s expected growth, the pace of new single-family home sales will remain below the U.S. average of about 650,000 dating to 1963, according to Census Bureau data. Homebuilders are waiting for the millennial generation to increase buying, a boom that could take years to materialize as student debt, tight credit and delayed child-bearing depress their housing purchases.
There are about 74.7 million millennials -- those age 18 to 34 -- compared with with 75.2 million people in the baby-boom generation born from 1946 to 1964, according to Census data. While the baby boomers are greater in number, they cover two more years, said Jed Kolko, chief economist at Trulia Inc. The most common age in the U.S. is 23, he said.
The market has been “bumpy” as buyers remain skittish, Toll Brothers Inc. CEO Douglas Yearley Jr. said during a conference call last week. His company, the largest U.S. builder of luxury homes, on Dec. 12 forecast lower-than-expected growth for 2015, sending shares to the biggest drop in almost two years and the year’s biggest one-day withdrawal from the iShares U.S. Home Construction Exchange-Traded Fund.
The share of first-time buyers this year dropped to the lowest level since 1987, the National Association of Realtors reported last month. While the U.S. homeownership rate has fallen to 64.4 percent, the lowest in almost two decades, the rate among people age 65 or older stayed at about 80 percent.
“Boomers are much wealthier,” said Jeff Handlin, president of Oread Capital & Development LLC, a Denver-area developer based in Centennial, Colorado. “They will pay for upgrades and a lot of premiums that add to the bottom line of the builder. Millennials are more of a price-focused buyer.”
Builders are growing mostly by catering to move-up buyers - - or empty nesters who are downsizing. Baby boomers have better credit and more savings than their children, who often depend on parents to finance their first home, according to Nela Richardson, chief economist for Seattle-based Redfin Corp. In addition to Florida, communities targeting older buyers are popping up around college campuses and urban centers such as Baltimore, Philadelphia and Chicago, Richardson said.
“We’re seeing boomers moving to walkable urban communities so they’re going to be sitting side by side with millennials at the same coffee shop, sharing the same electric sockets,” she said in a phone interview. “Boomers and millennials are looking a lot more alike but one of them has the money and credit.”
Top destinations for baby boomers have affordable homes, lower tax rates and a welcoming business environment, according to a report last week by the National Association of Realtors. Leading markets include Albuquerque, New Mexico; Boise, Idaho; Denver; Phoenix; Greenville, South Carolina; and Raleigh, North Carolina, along with cities in Florida.
With an estimated 10,000 Americans turning 65 every day, retirees are already helping to fuel a construction boom in southern Florida. Housing starts in the third quarter jumped 46 percent from a year ago in the Fort Myers-Naples area, with the one-time U.S. foreclosure capital becoming the fastest-growing new home market, according to market researcher Metrostudy.
The Jays live in Minto Group’s Sun City Center. The Ottawa, Canada-based company, which builds and develops throughout Florida, projects its sales in the state will rise to about 900 next year, up about 30 percent from 2014. About 65 percent of 2015 sales will be in developments restricted to or marketed to boomers, said Mike Belmont, president of Minto Communities Florida.
Minto plans to buy 1,600 acres (650 hectares) in the Daytona Beach area next year, building on the success of the 2,400-acre Isles of Collier Preserve in Naples, which has sold 120 units at an average price of about $650,000 since opening in February, Belmont said.
“We would not have made the acquisitions we’ve made over the last two years if we didn’t have strong confidence that we will be successful,” Belmont said. “Florida is still very attractive. There’s no state income tax and low taxation. The harsh winters that were experienced in the Northeast and Midwest are an impetus for folks to move to Florida.”
For Atlanta-based PulteGroup, Del Webb’s pace of sales per community increased by about 23 percent in the third quarter, up from a year-over-year growth rate of 7 percent at the start of 2014, Dugas said.
Tri Pointe Homes Inc., which sells in eight states after this year’s $2.8 billion acquisition of Weyerhaeuser Real Estate Co., is opening active-adult communities in Phoenix and northern Virginia in 2015.
“The tale that’s going to bring about the housing recovery is the millennials,” Tri Pointe CEO Doug Bauer said in a telephone interview from his Irvine, California, headquarters. “In the short run, obviously the baby boomers and the active adult is an additional segment of housing that we definitely want to play in.”
After the Fort Myers-Naples region, areas with the biggest increases in third-quarter single-family housing starts are Southern California, with a 28 percent jump, and Northern California, up 23 percent, according to Metrostudy. The biggest publicly traded builders in those markets are Lennar Corp. and KB Home.
They were followed by Florida’s Sarasota and Bradenton region, where PulteGroup has the largest market share of public builders; and San Antonio and Austin, Texas, where D.R. Horton Inc. holds the top market share, according to Metrostudy.
Builders may be following the wrong strategy by going upmarket when there’s a shortage of supply at the bottom, said Sam Khater, an economist for Irvine, California-based CoreLogic Inc. While the retirement of baby boomers will drive growth incrementally, particularly for vacation homes, many of them will choose to age in place, Khater said.
“Mobility declines, and declines a lot as a person ages,” Khater said. “They’re not as likely to move as they were in their 40s as they were in their 20s. I don’t see them being an additional source of demand or supply.”
WCI Communities Inc., a Bonita Springs, Florida-based builder of resort and retirement subdivisions, reported its backlog -- a measure of future sales -- increased 40 percent in volume and 64 percent in value for the quarter ended Sept. 30.
“We’re on kind of a very, very fast-paced growth and our sales year-over-year were up dramatically,” said WCI CEO Keith Bass, whose company filed for bankruptcy in 2008 after Florida’s housing market collapsed. “The demographics, certainly for the buyer profile that we target, makes it a game that goes into some extra innings.”
The Jays, who paid cash for their 2,700-square-foot house in southwest Florida, are also considering buying a summer property in the Denver area. They plan to sell their house in Sharon, Massachusetts, next year, getting two homes in exchange with some money left over, the couple said.
Buying a home won’t be as easy for their children’s generation. The Jays have twins in college.
“Baby boomers are driving the market because they have a certain degree of wealth,” Michael Jay said. “We’re just basically making lateral moves in real estate and retiring. But the kids need to make money.”