Could one house, with all the right features, lure first-time homebuyers off the fence and into the housing market?One company is betting on it, and it wants to build prefab homes for these elusive buyers.
Their story goes a little something like this: They’re young and relatively untethered, typically 19 to 33 years old, and interested in living in neighborhoods that are urban, walkable and close to work. At the same time, they’re not making much money, they have too much debt and they just witnessed a near-collapse of the American housing system.
They are understandably timid about entering the world of real estate.
Nonetheless, the housing industry needs these buyers: Gen Y, or the Millennial generation, comprises the largest generational share of homebuyers—and of those, 76 percent are first-time homebuyers, according to the National Association of Realtor’s 2014 Home Buyer and Seller Generational Trends report.
Cracking the code
With so much at stake, everyone wants a piece of this pie—especially the rapidly expanding construction industry—though few have been able to find the right recipe. First-timers typically can’t afford new homes, and tend to choose older, less expensive homes. NAR’s report confirmed that this new crop of first-time buyers is no different.
Knoxville, Tennessee-based Clayton Homes, however, thinks it’s made inroads with a model that the company just revealed at a Berkshire Hathaway meeting in Omaha.
It’s called the Gen Now Concept House, and it’s full of features and characteristics that Clayton’s market researchers think hold special weight with Millennials/Gen Y (the group of 92 million, ages 19 to 37, that Clayton has named “Gen Now”).
“The 92 million just kept popping out,” said Alan Neely, vice president for product development for Clayton Homes. “That’s such a big demographic, and that would be such a win. So we started to talk about how we could develop a product that would attract that crowd.”
The Gen Now Concept House
The model is a simple, long rectangle that at 1,200 square feet, doesn’t quite match the heft of a manufactured double-wide trailer. But it makes good use of its space, the designers say, by reimagining it as multifunctional rather than tradition-bound.
The front door opens directly onto the kitchen (or the “cook,” as Clayton unabashedly renamed it to help free designers’ imaginations), which is open to the living space (dubbed the “hub”). Hidden behind the open space are the laundry and storage room. Next to the living room is a so-called flex room. It could be a nursery, a game room, an office or a bedroom, depending on what the homeowner needs and where he or she is in life. The master bedroom and second bedroom sit at each end of the space, so they act as retreats.
The home is up to date on its energy efficiency standards, and includes an all-knowing tablet that controls the temperature, lighting and security system (including an interior camera), and can lock and unlock doors. The home has a central charging station and a two-cook kitchen with roll-out cutting board and storage under the countertops.
Though the complete house may be offered within the year, the company is already integrating a lot of these features into its existing models, Neely said.
The shower doesn’t have a door but instead a glass partition, a popular feature in new bathrooms, Neely said.
What young buyers want
Clayton’s research seems to be right on the money with other data about today’s young buyers: They want open-concept kitchens, work-from-home-ready offices, energy-efficient appliances and home systems, bigger closets and storage space, bright colors and hardwood floors, according to research done by Better Homes and Gardens Real Estate,the National Association of Realtors and the National Association of Home Builders and echoed by a slew of others.
Personality is nice, but ease is better, some Millennials say. Lisa Harris, who has lived in a huge century-old house and in a newly built small house, fits the bill as a Gen Y first-time homebuyer: She’s a married 30-year-old with a young daughter.
“The new house is more energy-efficient, but the older house had character and extra space.
“But I prefer the new one over all that maintenance,” Harris said.
Alex Ransom, 22, recently purchased a 1,700-square-foot, three-bedroom starter home with his fiancee on the outskirts of Milwaukee. It’s newer and smaller, which was attractive because, like Harris, they weren’t interested in a lot of upkeep.
It comes down to money and risk tolerance
So could all the fancy features and smart design of a Clayton home convince first-timers to make the leap into homeownership?
Money is the first hurdle, of course, but signs suggest that the right economic conditions are approaching. Zillow is predicting more than 4 million first-time buyers will hit the market this year, based on a March survey. Barclays equity researcher Stephen Kim just released an in-depth report, “The Return of the First-Time Buyer,” arguing that job growth, loosening credit and continued affordability has put these buyers in a position, for the first time in years, where they really can buy.
Clayton’s smaller price tag helps. The fully loaded home would run $80,000 plus the cost of the lot for the Gen Now home.
But they still have to fight down debt—Barclays identified student debt as the biggest issue putting the brakes on buyers—and it’s preventing them from saving enough of a down payment. Their salaries are much lower than other buyers at just around $74,000, according to the NAR’s generational report.
On top of that, these buyers are less likely to overextend themselves on housing. Even with a price range that was affordable on both ends, Ransom and his fiancé weren’t willing to shell out more money for a better home if it meant putting any discomfort into their monthly budget.
“We actually said no to a couple houses in our price range because we didn’t want to be on a ramen noodle budget,” Ransom said.
‘They watched their parents struggle’
Real estate coach and trainer Travis Robertson made a poignant argument earlier this year when he talked to Inman News. In short, he believes many young buyers don’t want the financial burdens of their parents.
“They watched their parents struggle to make their house payments and the arguments that ensued,” Robertson said. “This was exacerbated by the fact that the big houses also meant there were plenty of places you could go to avoid having to communicate with other family members.”
Their homes also aren’t guaranteed to appreciate like their parents’, so paying the industry-standard 20 percent premium for a new house seems like an unnecessary burden. In fact, according to a Trulia study released today: Although 4 in 10 Americans express a preference for a new house over an existing one, not even 2 in 10 are also willing to pay a 20 percent premium.