The demand for new entry-level homes far exceeds the demand for larger, more expensive homes for all of the following reasons:
- Affordability for renters is the best in decades, with low home prices, 5% mortgage rates, and low-down payment programs available through the government.
- Generations X and Y are forming families and settling down, while the Baby Boomers already own a home.
- The outlying areas where new homes tend to be located are not the established neighborhoods where many affluent people want to live.
Because of this, builders have redesigned their homes to be smaller and are experiencing more success than they were experiencing in 2008 and 2009. But that isn’t the whole story.
Some move-up homes are the best-selling projects! Thus far this year, we have done-on-the-ground market research in 24 MSAs. On several occasions, the best-selling new home project in the area was one with larger, more expensive homes (including value-oriented homes with up to 5 bedrooms).
The bottom line: By doing your homework and focusing energy on the untapped demand in your market, you are likely to make much more money than you would by following the herd. With many big builders having no budget or staff to do the research, smart builders are cost-effectively outsourcing this research to groups like us.
