Making The Case For 1st Time Buyers To Choose A New Home

If Keith McKinney is right, New Home Sales data for April – due to come to light this Thursday – will likely reflect a slight variation on a theme, whether or not it keeps pace with better-than-typical seasonal trends.

The prevailing trend is this: A formidable and resolute group of young adults, unencumbered by previous property ownership contingencies, are unrelenting in their quest for homeownership.

For McKinney, VP of Organizational Development at New Home Star, those perseverant homebuyers, motivated by both life-stage milestones and a moment-not-to-miss mindset, signal a defining era in this housing cycle.

If you ask me, 2024 would be The Year of Resolution," McKinney tells me in our TBD Player conversation, 'Lower Barriers to Entry Level.' "It starts with a high level of consumer confidence, especially in the new-home area, where buyers are seeing both product and pricing they can make work into their budgets. They're the ones where – as life happens – they need and want to move into their own home now. They're fighting cost-of-living cost increases at every turn in their life, and they're deciding that, rather than wait for better pricing or lower rates, they'd better act now. Those lower rates and prices may never come back. This is where the resolution comes in, and it's where their decisiveness means so much."

Reason for that baseline of confidence comes through in a Wall Street Journal piece today:

By many measures, the U.S. economy has rarely been better in the past half-century than it is now. Unemployment has been below 4% for 27 months, the longest stretch in more than a half-century. Consumer spending rose a brisk 5.8% in March from a year earlier—and was up roughly 30% from prepandemic levels. The S&P 500 stock index is near record highs."

Still, amid a broad backdrop of uncertainty and volatility, a month ago, expectations for the upcoming New Homes Sales reading were guarded, as 30-year-fixed interest rates topped 7% on average, and ongoing affordability challenges weighed on the outlook.

We wrote here about several signs of market softening in April, and National Association of Home Builders chief economist Robert Dietz telegraphed as much as he analyzed better-than-expected March results for new home sales.

The pace of new home sales will be under pressure in April as mortgage rates moved above 7% this month, which is expected to moderate sales and increase the use of builder sales incentives this Spring."

Will McKinney's 'Year of Resolution' – particularly among young adult first-time buyers – continue to drive and define the dynamics of the 2024 selling season? In a wide-ranging conversation with New Home Star's Keith McKinney on why new construction is a smart choice in today’s housing market for first-time homebuyers, we reality-checked Keith's theory, delved into what the data says, and came away with insights new home marketing and sales teams can put immediately into action.

Here are some of the high-level insights McKinney shared with us:

Q: What does the data say about first-time buyers today?

Our industry needs to accept the reality that the first-time homebuyer behaves differently. They earn differently (i.e. more), and they have different wants. Start by understanding the difference between first-time homebuyer homes and affordable (entry-level/starter) housing. Once, they were interchangeable. Now the two have separated, more than we realize. Until a few years ago, Generation X was the first-time buyer, and that's now shifted to Millennials.

As we see Baby Boom generation buyers reach the latter part of our home cycle, here comes a new generation of Millennial buyers. Economically, they make more money than Baby Boomers and GenX did when they first became first-time homebuyers. What's more, they're willing to wait for what they want. Many of us that grew up grew up in a house with only one bathroom, or maybe two. This new first-time homebuyer has had their own bathroom, probably for the last eight years of their life. And so what they want in a house is based on what they've become used to. Their expectation levels are higher. This is the dichotomy that we're going through right now. Entry-level homes are higher spec than they used to be, and Millennial adults want them that way, and accept that they're going to pay more for them."

For new home sales professionals, 70% of Millennials will be first-time homebuyers. That's that's a statistic that we can't ignore."

Q: Why 1st-Time Buyers Should Consider a Newly Built Home

As we've noted, their level of expectation is high. The success of the previous generation factors into those high expectations. Many first-time homebuyers don't carry debt, and they're not carrying the weight of having a place to sell. Many of them still live with their parents or their grandparents, allowing them to save money and be in a better financial position to qualify for a larger or nicer home."

For new home builders, this is a generation of first-time homebuyers looking for the appeal of new, where nobody else has lived. 'I can call it my own from the very beginning.' This new first-time homebuyer is attracted to that. What's more, new home construction comes with warranties that safeguard the future. It is a safe place for them. They know that they can make a purchase that is good for their financial future – it's protected – and doesn't need a lot of sweat equity to make sure of that."

Q: What Do 1st-Time Buyers Look for in New Neighborhoods?

Mostly, they want places that adapt to their lifestyle. They don't – at first – tend to come with a family. They don't tend to arrive with kids. They're coming with pets. They're coming with newly-formed relationships or long-lasting relationships. They want a place that fits their lifestyle. They tend to cook when it's convenient, but they also want restaurants, takeout, and entertainment sources nearby. They don't want to have to drive and commute. More first-time homebuyers will be remote workers from home than at any time in our industry's history. You're making sure a home satisfies not only the personal space but also the workspace. They're not asking that it'd be huge; they want a floor plan and a space to be extremely efficient. They understand they will have to pay a little higher first cost because of where we are in our industry cycle, and they are willing to do that, but they want the home to operate efficiently and at a lower cost of ownership."

Q: What Role Does Home Tech Play for 1st-Time Buyers?

They grew up in the technology world, and they value that, so, as builders and marketing professionals, we have to make sure we do the research, and make sure new construction homes provide technologies we include in the floorplan and layout that will make their life easier make their life more convenient. The easy button for builders is to say, 'We'll make it an option.' Well, if you make it an option, that's a choice. First-time homebuyers look to understand what a builder has already thought ahead and installed when they show up. They're used to Amazon, 'buy now.' That's what they're searching for and want. If we can include the important smart home tech features that they're looking for all in one package, that that makes it convenient and very easy to digest for them."

Q: How To Gain Market Share In Today's Fierce Arena

You must prioritize using your marketing efforts to get to know your customer in a market and learn from your marketing efforts. Too often, we devise a marketing campaign and just let it run, thinking, 'They'll come sooner or later.' You must understand that you must be adaptable and flexible with your marketing campaigns and plans. The question is, 'How do you learn from your marketing campaign?' You have to fuse whatever you learn into your next marketing campaign. That's how you can improve your effectiveness and increase your market share."