CM10 Reshaping Development Patterns Bruce Burger

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CM10 Reshaping Development Patterns Bruce Burger

  1. 1. Rural Real Estate Markets in the Northern Rockies After the Great Recession… in search of a New Normal Community Matters / 2010 Denver, Colorado
  2. 2. Historical Perspective • How Did We Get Here? – 1980s – Early 1990s – Mid 1990s – Early 2000s – The Greatest Real Estate Bubble in Modern History? – Mid 2006 – Mid 2008 – Fall 2008 – Present
  3. 3. After the Bubble • Values resetting to historic averages
  4. 4. The New Normal • Factors Driving Demand – Evolving Demographic Trends • Nexus of the Baby Boomers and Gen X – Post-Crisis Economic Realities • Aftermath of the Great Recession – Changing Consumer Preferences • Energy Cost Consciousness • Awareness of the Environment • Revised Expectations
  5. 5. Evolving Demographic Trends • It’s still about the “Boomers”…or is it? “Memories are short…the Boomers are who they are, and will buy what they’ve always wanted as soon as they regain their confidence and their resources return to “normal.” “The Boomers have been gravely wounded or scared to death…those that can will eventually return – but there will be fewer of them – and their attitudes and expectations will have changed.”
  6. 6. Evolving Demographic Trends • Remember who they are: – 78 million people born between 1946 and ‘64 – 4.3 million born in 1957 alone…more than in any year before or since – Make up 28% of U.S. population – Have driven our consumption-based economy for the last 20-30 years – A one-time economic phenomenon….they waited longer to have kids and had fewer of them
  7. 7. Evolving Demographic Trends • Where are they now? – In 1990 they were 26 to 44 yrs old; in 2010 they’re 46 to 64 yrs old – Studies show average U.S. household spending peaks at age 46-50 – One American now turns 50 every seven seconds – U.S. economy now beginning to feel the trailing end of the “Boomer Spending Wave”
  8. 8. Evolving Demographic Trends • Who comes next? – GenX’ers: born between roughly 1965 and ’79 will follow them – GenY’ers: those born following through the early to mid ‘90’s, now roughly 16-30 yrs old Source: BabyBoomer HeadQuarters – www.bbhq.com
  9. 9. Evolving Demographic Trends • Studies show the traditional consumer real estate purchase cycle includes: o Starter homes beginning around age 28-32 o Trade-Up homes beginning around age 40-42 o Second homes beginning around age 48-50 o Retirement homes beginning around age 60-62 • Boomer preferences have been driving real estate markets for the past 20-30 years • Trailing Boomers, GenX’ers and GenY’ers together suggest a more diverse set of appetites will drive markets going forward
  10. 10. Post-Crisis Economic Realities • Negative Wealth Effects • De-Leveraging • Employment Instability • Credit Contraction • “Unusual Uncertainty”
  11. 11. Post-Crisis Economic Realities • Reduced Household Wealth – Simultaneous collapse of both real estate and equities markets – Household wealth down 18% in 2008 alone (vs. 3% after tech stock crash)
  12. 12. Post-Crisis Economic Realities • De-Leveraging of Household Balance Sheets – Decreasing debt while re-building savings Source: Federal Reserve Bank of San Francisco
  13. 13. Post-Crisis Economic Realities • Long Term Unemployment – Jobless recovery? – Structural changes in U.S. labor markets – Long range impacts on consumer psyche and spending patterns
  14. 14. Post-Crisis Economic Realities • Credit Contraction – Increasing capital reserve requirements – Tighter lending standards – Collapse of securitization markets and the shadow banking system – Mis-aligned incentives continue
  15. 15. Post-Crisis Economic Realities • “Unusual Uncertainty” – Anemic GDP growth – Interest rate prospects – Inflation vs. deflation – Potential tax increases – Re-regulation …is the party over? Source: Federal Reserve Bank of San Francisco
  16. 16. Changing Consumer Preferences • Trends in Future Market Demand – Kelsey-Norden Surveys #1 thru #3 (2009 –‘10)
  17. 17. “Luxury is dead. Anyone trying to sell it as a concept is a fool.” Changing Attitudes - Luxury Backlash Kelsey-Norden Resort Real Estate Surveys #1 - #3 Courtesy of Creative Commons
  18. 18. Commitment to Green Kelsey-Norden Resort Real Estate Surveys #1 - #3 Courtesy of Creative Commons
  19. 19. Homes - Not Lots Kelsey-Norden Resort Real Estate Surveys #1 - #3 Courtesy of Creative Commons
  20. 20. Carrying Costs Must Be Lower Kelsey-Norden Resort Real Estate Surveys #1 - #3 Courtesy of Creative Commons
  21. 21. Changes in Attitudes • American Affluence Research Center (AARC) – Twice annual surveys of top 10% U.S. households -- based on net worth, income, primary residence value and investable assets – Representative of the 11.4 million households that account for nearly half of all consumer spending, – Respondents indicate preservation of capital has become their primary investment objective (vs. asset growth and appreciation) – Spring 2010 Survey: “With the exception of building a new vacation home and building a new primary residence, the intent to purchase one of the various major items during the next 12 months has shown a marked improvement ....”
  22. 22. The Boomer Factor - Back to Normal? Kelsey-Norden Resort Real Estate Surveys #1 - #3 Courtesy of Creative Commons
  23. 23. The Boomer Factor - Focusing on Retirement? Kelsey-Norden Resort Real Estate Surveys #1 - #3 Courtesy of Creative Commons
  24. 24. The Road Ahead “Even with the bounce back in sales, existing home sales remain at incredibly depressed levels. This should not be surprising given prices which remain elevated and the inventory of homes which remains quite large. The imbalances built up during the previous expansion are being worked off – inventories are lower than the peak – however the idea that a five or seven year housing bubble can be corrected in a few quarters or even two to three years seems optimistic. We are further along today than we were yesterday but still trail where we need to be tomorrow…” – Dan Greenhaus, Economic Strategist; Miller Tabak & Co. (09/23/2010)
  25. 25. The Road Ahead • Trends in Real Estate Markets – Price trends: watch for continued reversion to historic averages – A more cautious and skeptical consumer; belief in real estate as an “investment” has been shattered – Foreclosures will continue to drag on markets – Decreasing rates of home ownership; renting re-emerges – A preference for buying built product over vacant lots; product differentiation and location matter more than ever – Value = a good price and a lower ongoing cost of ownership – Wounded Boomers and Gen X/Y: Smaller, more efficient living spaces….value and convenience trump supersized homes and lots – Boomers are still a factor but their dominance is waning; its time to start looking to who’s beyond them
  26. 26. The Road Ahead • For Growth & Development Patterns – Diminished appetites in the capital markets will continue – Developers will need to justify sales assumptions with genuine demand assessment and traditional economic analysis – Flight to Quality: A return to valuation based on A, B & C graded properties and primary, secondary and tertiary market areas – For Communities: Challenge and Opportunity • A race to the top • Re-think policy, re-focus vision and re-establish identity • Navigating the New Normal: “Fiscally responsible growth”
  27. 27. Seeing the Light? Land Decision Resources, LLC Billings, Montana bruce@landdecision.com
  28. 28. To download the Kelsey-Norden Survey Reports, go to: www.steeplechasepartners.com and click on “Research” (new consumer-based survey research to be posted soon!) More Information To download the RDP project working paper, go to: www.lincolninst.edu and click on “Publications and Multimedia” (WP10BB1 -- by Bruce Burger & Randy Carpenter; 2010)

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