Demographic trends: Who?s going to buy your next home?

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Leading demographers say a major shift is occurring in the U.S. population, and home builders should take note.

Demographic trends: Who’s going to buy your next home?

Demographic trends: Who’s going to buy your next home?

July 23, 2012

The period between June 2010 and July 2011 marked a historical milestone for the nation that received very little press or fanfare. During that 12-month span, for the first time in U.S. history, minorities made up the majority (50.4 percent) of births, according to a May 2012 Census Bureau report. While these 2 million-plus newborn Americans are decades removed from homeownership, they represent a titanic shift in population that has been occurring for decades in the U.S. — and reached the historic tipping point last July.

(Note: This article was published as part of Professional Builder's July 2012 Design Innovation Report. For more articles from this special report, click here.)

This trend is evidenced by the home-building industry’s next generation of prospects — the echo boomers — which is the most diverse of any population group that preceded it. And the group that follows — the linksters, pluralist generation, Facebook generation, whatever you want to call it — will be even more heavily weighted with minority buyers, especially Hispanics. The point is, when the home-building market eventually returns to historical norms and the current pent-up demand is unleashed, chances are the typical home buyer is going to be decidedly different from the average buyer of the past.

“There’s a lull in terms of the younger generation not yet being able to get the financing to buy a home, and there’s pent-up demand that is going to be released in three or four years, if not sooner,” says William Frey, a leading U.S. demographer and senior fellow with the Metropolitan Policy Program at the Brookings Institution. “Part of that demand is going to be young minorities, especially Hispanics, Asian Americans, and blacks; it’s not going to be your typical white Americans kids of current suburbanites, so builders need to be ready for that and do their market research to find out what those people are looking for.”

The Joint Center for Housing Studies of Harvard University forecasts that between 2010 and 2020, minorities will account for seven out of 10 new households on average. “Hispanics especially will account for an appreciable share of household growth going forward because of the fact that they are a sizable share of the population and are also concentrated in younger households compared to whites,” says Christopher Herbert, research director at the Joint Center.


During the period of 2000 to 2010, the U.S. grew by 27.3 million people. Of that growth, only 8.3 percent were non-Hispanic whites, while more than half were from the Hispanic population.


Demographer Steve Murdock sees the U.S. population split into two distinct groups: the aging, non-Hispanic whites who have low fertility rates and negligible immigration rates; and the younger, mostly minority population. The challenge long term for the nation, says Murdock, is dealing with a situation where a significant portion of the population — the baby boomers — is going to be replaced by minority groups that have traditionally been faced with lower socioeconomic resources.

“What’s going to be the impact of replacing people with more income with people with less income? That’s the question many people are asking,” says Murdock, who is the former director of the Census Bureau and founding director of the Hobby Center for the Study of Texas at Rice University. “The fact is, African Americans and Hispanics continue to have incomes that are 60 to 70 percent of what they are for non-Hispanic whites.”

What does this trend mean for builders? It could translate into increased demand for multi-generational products and homes that lean toward the affordability side of the spectrum.


Even without strong immigration, echo boomers already outnumber previous generations at similar ages.


Other Housing Drivers

While the diversification of the population is considered the most significant macro trend, demography experts noted several other key housing drivers for both the short and long term:

Record-low household growth rates persist. Between 2007 and 2011, just 600,000 to 800,000 net new households were formed each year, about half the number averaged during the four previous years and the lowest levels since the 1940s. The sharp decline in household growth is of course linked directly to the jobs market and overall economy. “We expect that with the resumption of economic growth to the point where we have a normal, healthy economy, household growth should get back to about 1.2 million a year,” says Herbert.

Exurban growth may not recover any time soon. The low-density, outer metro areas that once drove the housing boom reached new lows in 2010-11 — growing less than 0.5 percent on average across the nation’s largest metros. “There’s been debate about whether the exurbs are dead,” says Frey. “It’s too soon to make any kind of judgment, but I think it’s going to be a long time before we see the very high rates of exurban growth.”

Married couples are now the minority. According to the 2010 census, for the first time, households headed by married couples accounted for less than half the total (compared to about 80 percent in the 1950s). And married-with-children households represented just a fifth of all households, according to Frey.

Baby boomers are likely to stay put. The fact is, mobility rates drop sharply with age, and adults over age 65 are almost eight times less likely to move in a given year than those in their 20s, according to the 2012 State of the Nation’s Housing Report from the Joint Center for Housing Studies. Add to the equation the negative effects of the housing downturn, and it stands to reason that the vast majority of boomers will stay put.


For more articles from Professional Builder's special Design Innovation Report, click here.

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