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A New Trend for Homebuilders

Casita means small house in Spanish. The word was first used in 1868… and in 2011, it is the homebuilding industry’s latest answer for the troubled housing market.

In September, Lennar introduced its new Next Gen “Home Within A Home”, a model with separate living quarters, and a separate entrance. The Next Gen models are the homebuilder’s response to a growing trend in American households: multi-generational living. And Lennar is not alone. Toll Brothers, KB Homes and Pulte Group have models to appeal to extended family living.

Multi-generational households have grown 30% since 2000. Today, 51 million American households are made up of at least two generations of adults… that amounts to 16.7% of the population. And 5.1 million households consist of three generations.

This is not a new trend. Multi-generation homes have been increasing since the 1980s. But it is definitely a growing trend…and lately it is accelerating. Between 2007 and 2009, multi-generational households increased 10.5%.

And it’s not a surprising trend. The recession left consumers cash-strapped and facing a high unemployment rate…25% of unemployed people live in a multi-generational home. And one in five young adults (25 to 34) lives with extended family. Pooling family resources is an obvious response to a trying economy.

But the fact that more families live in multi-generation homes means that household formation is declining. 1.48 million households were formed in 2004…that fell to 515,000 in the midst of the recession in 2009. And in the scheme of things, that doesn’t speak well for housing demand.

Homebuilders might be keeping up with the trend, but that’s the best that can be said. New homes sales peaked in 2005 at 1.28 million, but just 305,000 are expected this year. But homebuilders’ confidence is improving; in November the NAHB’s gauge of builder confidence reached the highest level since last May (though it is still depressed). And that confidence is evident in building permits…which rose this month to the highest since March of last year.

But the reality is that a permit is just a permit until ground is broken on construction. And the increase in permits was based on a 30% increase in apartment/multi-family units…that’s not good news for single-family home demand.

That said, the homebuilding space is a sell. Looking at a proxy for the industry, SPDR S&P Homebuilders Index (XHB), the fund signaled a long-term sell in August…and it’s down over -8% year-to-date.


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