The Evolution of the Real Estate Market

As seen through the eyes of utility companies.

 

Recently I was sitting beside a young woman who was returning from a utilities conference. And since a customer of mine had recently asked me about the advisability of installing solar panels on her house that she intended to sell in about five or six years, I asked my seating companion what the expectations were for the power companies in the next five or six years. What she told me underscored the differences between my parents’ generation and the first time home buyers of this generation.

My parent’s generation struggled through the Great Depression and that struggle taught them the value of saving. They became the saving generation and as they passed on there was a tremendous transfer of wealth, probably beginning as early as the mid-1980’s. It gained momentum around the turn of the century. And that capital was handed over to the Baby Boomer generation. They were spenders.

While their parents stayed in their homes and burned their mortgages after thirty years, the Baby Boomers were on the move. They owned multiple houses and outfitted them with all the modern gadgets. They used their homes as an ATM for supporting their lifestyles. And then the economic crash hit in 2008 which centered on the real estate market. Millions of people lost either their homes or the equity in their homes.

The Millennium Generation learned from their parents’ experiences that residential home ownership is not a cash cow. So, the Millenniums have been slow to purchase properties. They are emerging from college with high student debt and expectations that they will be moving from job to job for the foreseeable future. Therefore, they are opting to rent. Look around, you will see that in action as more and more rental properties are being built – not single family homes.

As more people opt to stay in their homes for now, they are saving money on utilities by upgrading their appliances to more energy efficient ones. Some are turning to geo-thermal heat sources, others to solar panels or wind turbines. People are beginning to brag about being “off the grid” and generating their own energy. So my seat companion explained that utility companies have seen a significant drop in consumption. They anticipate this trend will continue as new homes are built with an emphasis on being “green.” Because of this desire to reduce energy consumption, they expect a corresponding decrease in the popularity of large homes.

The utility companies and the real estate gurus seem to be on the same page. Growth in the housing market, while trending upward, will be a slow steady climb not a shooting star. Such a trend is really more like “the good ole days” when one needed to live in a house for 5 – 7 years for the appreciation to kick in enough for an owner to break even or to make a little on the sale.

Fortunately, history has shown that a declining market comes late to our area and typically our improving market is behind the national curve as well. We are just beginning to recover and our trends to rise. The absence of the first time home buyers, whose first purchase enables sellers to move up to their next homes, helps to explain the slow pace of recovery here as well as everywhere. The Millenniums are being careful.

Life is good and getting better!