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Generation Y Buyers Re-Energizing the Nation’s Housing Markets

Feb 5, 2013

Posted by

Thomas Testa

Thomas L. Testa is CEO and Co-Founder of Testa Capital Group, a private capital real estate corporation. Through its Residential Reinvestment Program, the firms family of companies repositions distres Read more

Housing industry cycles have historically contained three stages: the “receding/declining” stage, the “stabilizing/absorption” stage, and the “appreciation/expansion” stage.  A base of entry-level buyers that creates move-up buyers and momentum has fueled each appreciation/expansion stage of the previous housing market cycles.  The Baby Boomer generation estimated at 78 million fueled the 1970s and 1980s housing market expansions. The Generation X estimated at 40 million fueled the most recent housing market expansion through 2006.

And now come Generation Y entry-level buyers who are providing the fuel for today’s housing market stabilizing/absorption stage and are expected to fuel the upcoming housing market appreciation/expansion stage.

Gen Y live births in the U.S. exceeded 4 million annually for the first time since the 1960s Baby Boomers. Today, Gen Ys total approximately 81 million people and are expected to represent about 40 percent of the United States economy. Although this group has reached the prime stage in their lives for forming new households, household formation is about one-fourth the rate of just three years ago, suggesting that the recession has kept many Gen Yers renting or living at home with their parents, according to the Urban Land Institute, creating significant pent-up demand.  

Joel Singer, executive vice president of the California Association of Realtors®, points out that the average age of first-time buyers in California is 30 years old, and first-time buyers now make up 46% of California’s housing market.   Closer to home, Irvine Company’s Dan Young, president of the Irvine Community Development Co., points out that Gen Yers account for 85% of the company’s home sales in its Irvine Ranch developments, boasting the best home sales in the nation, according to John Burns Real Estate Consulting. 

Who are these Gen Yers? 

Generation Y is also referred to as Y Gen, Eco Boomers, Kids of Baby Boomers, and the Internet, Google and Einstein Generation.  They have grown up in an environment of Internet resources, instant worldwide communications, digital technologies, I Pods, I Phones, texting, Facebook, Twitter and intense multi-tasking.  At no time during our country’s business history have we seen 20-something entrepreneurs become instant billionaires the likes of Mark Zuckerberg, Larry Page and Sergey Brin.

These tech-savvy homebuyers, now in their household formation years, are intelligent, articulate, detailed, and armed with a textbook buyer’s market sophistication and mentality. Gen Y buyers have a distinct advantage with their intuitive use of the social media and Internet services for instant on-line market research, comparison and analysis.  Although most Gen Yers are entry – level, first-time homebuyers, many of them possess the knowledge of long-term seasoned veteran buyers. They have evolved into “Gen Y - Spreadsheet Home Buyers.” 

Speak their Language

It’s not uncommon for Gen Y buyers to arrive at the sales office or subject property equipped with a bevy of spreadsheets from various on-line services including Realtor.com, Zillow, Redfin, Craig’s list and other sites that provide detailed information on communities, neighborhoods, comparables and amenities. This level of research will often impress (and perhaps sometimes intimidate) a new home sales staff or real estate agent, who in many cases must show the highly informed buyer 15 to 30 listings in person before an offer is drafted.

The first step to a successful relationship and closing with this Gen Y buyer base is to speak the language by using text messaging and emails, which are much more preferable to phone calls, at least initially. In addition, emailing a direct link to a specific comparative market analysis through the Multiple Listing Service that is accessible with Smart Phones and Blackberrys, will help to establish Gen Y “street cred” and bond the relationship.

Because they tend to be market savvy, Gen Y buyers are value and quality driven and are typically more concerned with price per square foot than total square footage. In other words, unlike their parents, large homes with unused formal rooms and leisure areas are costly and unnecessary to this budget-minded homebuyer.

Convenience and amenities are also key, as are the three most important considerations in buying a home: 1. Location 2. Location 3. Location.  That hasn’t changed and these younger buyers tend to focus on the community profile and want to be close to restaurants and shopping centers, sports clubs, parks, recreation, beaches, police and fire, safe, secure community facilities, easy access to freeways, and quality schools for those with children.

Whether they are living at home with parents, renting, in the military, or are actively searching for their first home, the strategic impact of the coming surge of the Gen Y buyer on the stabilization and expansion of the current housing market is critical, intriguing and expected to continue to be a very positive and dynamic market force.  This entry-level base will also create the move-up buyers of tomorrow as it ages and progresses in the workplace, providing the consumer grist for the housing market to continue its recovery and expansion into the foreseeable future.