Purchasing a new home in a master-planned community (MPC) typically equates to higher monthly costs compared to buying an equivalent home outside of an MPC. Despite the premium, new home sales in the Top 50 master-planned communities tend to show greater resilience to and recovery from housing market corrections than the overall new home market. Below are three examples of MPC outperformance over the last decade.
1) 2012 recovery from the Great Financial Crisis: MPCs achieved a stronger recovery than the larger new home market as the economy bounced back from the immense distress of the Great Financial Crisis and housing correction. The amenities and lifestyle helped buyers justify the higher monthly payments to buy a home in an MPC.
- Consumers could drop their gym memberships and use the athletic facilities within their community.
- Parents could save money by sending their kids to good public schools, often located within the MPC, eliminating private school expenses and the time and expense of driving kids to school.
- Home buyers were also willing to accept smaller lots or backyards given the wide array of amenities in their communities.
2) 2019 mortgage rate decline: New home sales improved quickly in 2019 once the average 30-year mortgage rate fell below 4% in June, from roughly 4.5%-5% for most of 2018. Buyers who had sidelined home purchases in 2018 rushed back into the market to lock in lower monthly payments. The 50 top-selling master plans achieved a slightly bigger sales gain than the broader new home market.
- MPCs offer a broad array of home and lot sizes, densities, and price points, giving buyers flexibility to choose homes to fit their budgets.
- Once again, the MPC amenities and lifestyle were big draws.
3) 2022 battle with sky-high inflation: The new home market experienced a significant retraction last year in the wake of the Federal Reserve’s inflation taming interest rate hikes. MPC new home sales slowed much less than new home sales nationally.
- Many successful MPCs are located in the Sunbelt and benefitted from strong new home demand boosted by in-migration since the pandemic started. Local real estate agents recommend MPCs to relocation buyers and many new residents seek out their lifestyle and breadth of home choices.
- The pandemic accelerated the trend of consumers seeking greater connection with the outdoors. The common areas and amenities are typically restricted to MPC residents, enabling connections and friendships that many crave after experiencing isolation and may feel safer than spaces open to the public.
What drives the master-planned community premium?
The sales price premium for new homes located within MPCs reflects the lifestyle, community amenities, and quality schools, plus buyers’ anticipation that home prices will appreciate and hold up well in weaker market conditions. Buyers also assume that a future buyer will attribute value to the MPC lifestyle when seeking a resale home.
Buyers purchase homes in MPCs for a variety of reasons, including:
- Access to amenities, such as pools, a clubhouse, fitness center, sports courts, trails, parks, and events, which are often restricted to residents
- Prestige of living in an upscale neighborhood
- Proximity and quality of schools
- A sense of safety through neighbors watching out for each other, and sometimes restricted community access
- Holistic planning to address drainage, utilities, traffic flow, and maintenance
- Land planning that proxies for zoning, specifically in Houston where community plans prevent unwanted businesses or activities near people’s homes
Master-planned community developers prepare for slower home sales with an eye to recovery.
Most MPC developers express optimism for the future, despite the likelihood of slower new home sales in 2023 aligning with a national recession. MPC developers are accustomed to planning and phasing these large communities, sometimes over a decade or more and through the ups and downs of economic and housing cycles. To ensure they have lots ready when new home demand recovers, many will continue planning and development of future phases. Some will opportunistically acquire new sites, possibly at a discount. MPC developers shared several strategies they will pursue in the short term:
- Selective land deals: An Austin developer states, “We are being very selective in our investments, but we are still investing. Our thesis continues to be to invest in supply constrained markets, near job centers with affordable product.”
- Delaying future phases: A Richmond developer notes, “We’ll keep a close eye on inflation numbers and mortgage interest rates, and we’ll probably be hesitant to start any new lot development until we see how things are trending.”
- Enhancing current communities: An Austin developer tells us, “We will focus on community improvements and marketing in 2023 to support our residents and builders. No new land purchases in 2023.”
- Brand building: A developer active in Denver and Richmond explains, “We are remaining steady with our marketing efforts in 2023 to have a brand presence in the market. While sales are slowing, we want to be top of mind for both of our communities.”
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