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. 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
6. 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
7. 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.”
8. 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
9. 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”
10. 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
11. 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
13. 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)
14. Post-Crisis Economic Realities
• De-Leveraging of Household Balance Sheets
– Decreasing debt while
re-building savings
Source: Federal Reserve Bank of San Francisco
15. 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
16. 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
17. 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
19. “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
21. Homes - Not Lots
Kelsey-Norden Resort Real Estate Surveys #1 - #3
Courtesy of Creative Commons
22. Carrying Costs Must Be Lower
Kelsey-Norden Resort Real Estate Surveys #1 - #3
Courtesy of Creative Commons
23. 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 ....”
24. The Boomer Factor - Back to Normal?
Kelsey-Norden Resort Real Estate Surveys #1 - #3
Courtesy of Creative Commons
25. The Boomer Factor - Focusing on Retirement?
Kelsey-Norden Resort Real Estate Surveys #1 - #3
Courtesy of Creative Commons
26. 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)
27. 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
28. 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”
30. 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)
