Industry experts say that the majority of production housing is targeting the move-up buyer market
It’s no secret that median home prices have been rising, in many cases out of the first-time buyer’s reach, which is due in part to one fact: builders are catering to move-up buyers. Big builders know that equity buyers dominate many markets today. With demand high and housing supply limited, builders are being choosy about who their target market is.
As we all know, the millennial buyer will dominate the market in the future—but that hasn’t happened just yet. Industry experts say that the majority of production housing built in 2014 was built for the move-up market.
Increasing home prices are allowing individuals to sell their homes fast, which in turn provides a new pool of equity buyers in the market who are looking for a new, upgraded, and in many cases, a larger home.
Just look at California, for example, which holds nine out of the ten fastest moving housing markets nationwide. A fast moving market ensures that homes are being sold at, or in many cases above, the market price.
Toll Brothers, for example, boasted a high average home sale price for their first quarter returns this year. Toll Brothers CEO Douglas C. Yearley, Jr., said, “This quarter, California produced 29 percent of the value of our signed contracts at an average price of approximately $1.1 million.”
A report from Trulia titled “Gone in 60 Days” noted that even in some of the slowest moving markets, houses are still moving faster this year than they were last year, when looked at over a two month period. Another report by Trulia stated that buyers are still yearning for bigger homes.
That report said 43 percent of respondents wanted a house that was larger, or in some cases, much larger, than the one they were currently in. Research showed that this desire was spread across demographics, from growing families with children living in the suburbs or in affordable areas, to those groups who might seem ripe for downsizing—a significant portion of this group still expressed a desire for a larger home.
Another state with hot real estate markets—Texas—has also seen an increase in home prices, pushing much of the housing supply into the move-up buyer range. Results from a report published by Metrostudy on the Austin, Texas housing market stated that the segment of homes being built in the $300,000 to $500,000 range has shown a 26 percent growth rate over the past year.
This trend of building for the second- or third-time buyer makes sense. This is the group of buyers who are going to know what they want and be able to pay more to get it. Industry experts claimed that more than half of the nation’s largest builders, by volume and sales, were targeting the move-up buyer demographic.
This is not to say that builders are entirely shying away from the entry-level buyer, as that market is expected to begin emerging this year, but that builders are banking on trends toward larger, pricier homes that are currently taking place in the industry.
Standard Pacific Homes, for example, has found its stride with the move-up demographic, which is what helped them to increase its average selling price last year. This, in turn, has also driven its stock upward 17 percent so far this year.
On last year’s end financial results, CEO for Standard Pacific Homes Scott Stowell said, “New home deliveries were up 8 percent year-over-year to 4,956 homes with an average selling price of $478,000, up 16 percent from the year prior.”
Meaning that over all, Standard Pacific Homes has found its sweet spot in selling homes in the $400,000 range, a trending price range among buyers catering to the move-up demographic.
This market (homebuyers considering home prices in the $400,000 range) is one that had basically dried up during the recession. That pent up group of consumers who wanted to sell their homes as long ago as 2010, but held off due to poor market prices, know that now is the time to strike.
So until the starter home market makes its presence more known, it looks like many of the nation’s biggest builders are going after equity buyers—the ones with the ability to sell their homes and make a profit. ν
Jessica Burger is the Editor for Options magazine. She may be reached at email@example.com.