A good measure of builder sentiment and the proverbial crystal ball Visiting the International Builders' Show, I was struck how the housing industry always feels like a reenactment of the California gold rush-either there is talk of a “boom” or a “bust”.
With a robust economy, relatively steady interest rates and a rosy outlook one would think that marketing for the construction industry would be riding the gold rush all the way to bank. But even with a growing economy and positive demographic trends, I don’t predict a gold-rush craze coming for the new construction industry.
Here are five trends to keep a steady-eye on for your 2018 homebuilding marketing strategy:
Millennials Gain Market Share
The “M” word, or Millennials, has been a buzz word so long now that we have moved on to their successors in the marketing field. Finally coming of age, the largest cohort from this age group is turning 30 in 2020. So, what will 2018 Millennial home buying trends look like?
We expect a shift from urban rentals to home ownership as Millennials age into the time-tested family-forming years. Some experts feel that Millennials will shed their urban ways for space and schools. I respectfully disagree. I believe this age group will retain their urban settings and sacrifice space for prime locations.
This means marketing messaging needs to adapt away from the cradle to grave formula championed since the beginning of time. Don’t treat this persona as a typical expanding family target. Yes, the pain points of space and a growing family are the same but this generation is more roles balanced than their parents and values a more organic definition of family, success and community.
Especially in more urban markets, do not expect a rush of young families from the city to the suburbs.
What Does the New Tax Bill Actually Mean for Builders?
Even though we know the now passed tax bill will have less impact on the housing industry than previously thought, there are still many unknowns.
Some experts feel that this bill will raise wealth and income therefore stimulating demand. The flip-side includes the loss of several key deductions. Considering a simple supply and demand case: If increased wealth drives demand, prices will rise and already constricted supplies will become more scarce driving prices.
Loss of housing deductions especially for first time homeowners and price sensitive potential buyers creates the perfect storm when added to the rising price cocktail. Between loss of tax-deductions and rising prices, these buyers will be squeezed out to of the new construction market. But this could be a prime opportunity for the home remodeling market as these buyers choose to improve their current real estate assets.
Messaging that focuses on urgency is key while the uncertainty of the tax bill continues to shake out.Focus on messaging the resonates with the idea that now is the time to buy-before it’s too late. Home prices are expected to continue to rise and mortgage rates should top 5% this year between a strong economy and inflationary pressures, which means borderline buyers may qualify today, but maybe not a few months from now. Capitalize on these messages to drive fence-sitters into action fearing opportunity cost.
Sales Move South
Since the 2008 bubble burst, recovery has stayed mostly within highly desirable urban markets, where recovery has been swift and employment stable.
With cost-of-living increases in these areas, smaller markets are seeing a surge of economic growth as companies and homeowners seek out more economical places to call home.
Strong economies in the south coupled with healthy building supplies has us predicting the sales winds will shift southward. Sales are expected to grow around 6% in these warmer climates, compared to just 2.5% nationally.
Looking beyond 2018, the south appears to be a reliable alternative to typical northeastern power houses with a healthy supply of inventory around the corner. Cities to watch:
- Tulsa, Oklahoma
- Little Rock, Arkansas
- Charlotte, North Carolina
- Dallas-Fort Worth, Texas.
Not only are these hotbeds for new homes, these cities show a holistic picture of communities on the upswing in every way.
Marketing communities in these areas? Marketing to these communities should pivot to lifestyle messaging that focuses on location, amenities and economic opportunity. With the supply/demand wave swinging into their favor, buyers will be looking at more than just price.
Price Appreciation Slowdown
Revisiting our supply and demand curve shows that even though we predict a significant number of homeowners to be squeezed out of the market, entry-level homes will continue to appreciate for those that can afford them-and when the supply and demand curve is working in your favor, builders can expect better profit margins for entry-level home products in 2018.
Additionally for the first time since 2015, the market is expected to see inventory growth in the $350,000+ price range making it easier for the expanding family persona to find a home in some markets.
Are you a luxury market builder? Don’t expect major pricing gains for higher priced markets, but the good news is that these homes look to hold steady.
This isn’t exactly great news if you're marketing entry-level and expanding family homes. Increased inventory means the market swings in the consumer’s direction with more choices and more price-sensitive competition. It's more important than ever to differentiate your product and community however you can to appeal to your target personas. Don’t succumb to a simple price-war and lose precious margin. Focus on differentiation in a currently undifferentiated housing product market.
Invenstory Shifts: Multi-family to Single Family
Multi-family units are expected to soften as unit pricing slows, so where are those renters moving?
As Millennials age...yes, even time doesn’t stop for them...we'll see these urban-dwellers move from their beloved city apartments to their new urban and suburban single-family homes.
In fact, realtor.com predicts multi-family starts to decrease by 6% in 2018 and swing toward a jump of 7% in single-family starts. This pendulum swing isn’t unexpected. Multi-family units have been growing steadily since the recession and continued through the downturn that followed. Now that the economy has appeared to steady itself and rebound, naturally, we see a rise in home-ownership.
Multi-family marketers should buckle-up, as the ride is about to get a little bumpy again. Years of perfect weather conditions are ending and the fickle customer is realizing that rents are high, the cost of ownership is lower than previously thought, and people are exiting the rental market.
This leaves you in the difficult position of positioning your price against a flooded market of competitors, which now include entry-level homes.
Now is the time to review your competitive positioning, adjust amenities and pricing accordingly. Offer incentives to current customers to help retain them and polish off your target persona descriptions, which admittedly you probably haven’t needed in a while. Make sure that you understand the ideal life circumstances that lead to a rental preference for your buyers and market that messaging accordingly.
The winds of change are definitely in air in 2018 for the homebuilding industry and seem to be blowing Millennials out of their apartments and into entry-level and expanding family homes in the south. Now more than ever it's important to review your customer data trends and make adjustments to fine tune your market positioning.
Here at Illumine8 we're curious to hear where you think the industry is heading in 2018? Leave us a comment and let us know.
