Builders See Baby Boomer House-Hunting

Investor's Business Daily

The younger crowd may be skittish about moving into the housing market due to sparse financial resources and lack of credit.

But it's a different story for Americans age 55 and over. Those who can are jumping into homebuying — selling their existing houses to move into new ones aimed at their age group. Many are at or near retirement, while others are seeking a change in lifestyle — and at this age they can have financial flexibility.

Some have reaped hefty gains from the stock market, adding to a nest egg saved over the years. Rising home values in the housing recovery have also given more of them the ability to finally sell, at an appreciated price or at least one that can cover the mortgage.

Top homebuilders such as PulteGroup (PHM), Lennar (LEN) and Toll Bros. (TOL) report brisk sales for their active-adult homes and homes that appeal to the 55-plus crowd.

Take PulteGroup, which builds the Del Webb brand of active adult communities for adults 55 and over.

"Consistent with the overall housing market, we have seen sustained improvement in demand for our active adult homes for the past two-plus years," PulteGroup spokesman James Zeumer told IBD via email.

Signing Up Sales

The company's active-adult sales lifted from roughly 4,100 homes in 2011 to about 5,300 in 2013. Zeumer says the recovery in active-adult home demand continued into 2014. Sign-ups in the first quarter were up 7% and in the second quarter they rose 11% over a year earlier.

One gauge of demand in the single-family 55-plus housing market is the National Association of Home Builders 55+ Housing Market Index. In the second quarter the index increased three points from a year earlier to a level of 56. That's the highest second-quarter reading since the inception of the index in 2008 and the 11th straight quarter of year-over-year improvements.

The prognosis for homebuying across all age groups looks improved this summer with Thursday's release of July data on contracts signed to buy existing homes, and that could further bolster the 55-plus group's prospects to sell their old homes.

The pending home sales index rose 3.3% from June on a seasonally adjusted basis, though down 2.1% from a year earlier, the National Association of Realtors reported. It's at the highest level since last August and at 105.9 is above the level of 100 considered an average activity level.

"One of the factors contributing to the positive signs in the 55+ housing market is the slow but steady increase in existing-home sales in the last three months," said NAHB Chief Economist David Crowe in a press release. "The 55+ market is strongly driven by consumers being able to sell their existing homes at a favorable price in order to buy or rent in a 55+ community.

Domino Effect Applies

Adds NAHB Director of Economic Services Stephen Melman: "The best thing that could happen for new construction is that the existing-home market improves. Every prospective buyer, like the age 55-plus buyer, has to sell their existing home before they buy a new one. The real key (to the index rise) was the existing-home market.

Total existing-home sales lifted 2.4% to a seasonally adjusted annual rate of 5.15 million in July, according to the NAR. Sales notched their highest pace of 2014 and have risen four straight months. But they remain 4.3% below the 5.38 million-unit level last July, the peak of 2013. "Existing-home sales are continuing to move up," said Melman. "But the one caveat is the first-time homebuyer's share (of those sales) was less than 29%. Typically that would be 40%. So existing-home sales are increasing, but the first-time buyer isn't in there full tilt. So it may be the 55-plus (group) buying homes that meet their demand.

Sales of new single-family homes fell 2.4% monthly in July, the Commerce Department reported Monday. The seasonally adjusted annual rate of sales, at 412,000, marked the lowest level since March, although it was a 12.3% rise from last July.

Demand for new homes by the 55-plus age group is on the rise.

Toll Bros. Active Living is the luxury homebuilders' active-adult division, with single-family homes, condos and town houses. As of April 2014, it accounted for 8% of the company's revenue, says Toll Bros. Group President Chris Gaffney. He says all of Toll Bros.' homebuyers, including the 55 and over active adult group, have been motivated to buy in the past year or so.

"During this recent downturn, so many people were out of the buying market," Gaffney told IBD. "Now, they've seen their portfolios grow again, and they're extremely interested in making a move because interest rates are still fabulous.

Gaffney says there's "plenty of pent-up demand" on part of the active adult buyers following a pullback during the recession, and the "affordability index is quite high when you look at history.

These older buyers, he adds, have gotten "tired of putting their lives" on hold in the wake of the recession. " Generally these folks are extremely savvy and successful, they have tremendous FICO (credit) scores, they've built up their portfolios over the years and understand exactly what they want with their lifestyle and what they're looking to do as they move forward in life. .

Melman said by email: "The stronger 55+ market could be put in context of the overall strength of the trade-up market/higher-income buyers, except this group is focused not on larger homes but new homes better designed for their needs. As existing sales slowly increase, more people who put plans on hold can now sell their existing home to finance what they really want for the next ten or twenty years: quality design, low maintenance, accommodations for family.

Homes Built To Fit

Major homebuilders are luring this group with a raft of amenities.

Besides its active adult communities, Lennar offers an option for multigenerational families living under one roof. The "Next Gen" home within a home features a suite with a separate private entrance, bedroom, bathroom, laundry, eat-in kitchenette and living room.

Jeff Roos, Western regional president for Lennar, says many buyers want to let their children live in the suite. Since it started making these homes available at the end of 2011, Lennar has sold over 2,000. It has 120 Next Gen communities and more than 50 floor-plan options.

"The Next Gen is growing every day as we expand across the country," Roos told IBD. "This is the first time a homebuilder came out with a great solution for a multigenerational home. It's the first time (the different generations) can live together, but independently. We're seeing a big movement toward it. Our reception to the product has far exceeded our expectations.

Zeumer calls Del Webb homes "perfect for empty-nesters who may be looking to downsize, but not necessarily downgrade the features and finishings of their next home.

Options can include big garages, flex spaces, wet bars, hearth rooms, raised dishwashers and sunrooms.

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