The current housing-bust survival strategy for many Phoenix-area homebuilders leans heavily on a generation with the word "boom" in its name.
With relatively few working-age families willing or able to invest in a new home, older Baby Boomers, many of whom are in retirement or eyeing it, represent the best hope for some local homebuilders to keep busy.
Developers have spent the past few decades refining the concept of paradise for a key segment of retirees and empty-nesters who crave a balance of relaxation and excitement. It's called the "active-adult lifestyle."
The Valley's dozen active-adult communities under development are designed for them - a fusion of safe, quiet neighborhood and ritzy country club with golf courses, health spas and multipurpose clubhouses offering exercise classes, sports, games, arts, crafts and other activities.As in the rest of the new-home market, sales are down dramatically in active-adult communities since the housing slump began.
But Jim Belfiore, a Phoenix-based housing analyst, said the active-adult market has shrunk only half as fast as the rest of the new-home market. The new-home market share belonging to age-restricted communities has doubled since 2005 in metro Phoenix, to 10 percent from 5 percent, Belfiore said.
It's a sales trend many builders and housing analysts expect to continue.
Baby Boomers age 55 or older, the intended consumers for those homes, are the country's fastest-growing demographic. Already, one out of every four U.S. residents is 55 or older, according to U.S. Census Bureau data from 2009.
Builders such as Scottsdale-based Meritage Homes, a relative newcomer to the active-adult market, and veteran active-adult developer Del Webb, now a division of mega-homebuilder PulteGroup, are counting on the growing number of retiring Boomers to drive up age-restricted home sales in Arizona over the next few years, at a time when many younger residents may be struggling to get careers on track, rein in expenses, rebuild damaged credit or move ahead after a foreclosure.
The long-term future for active-adult development, even in the retirement mecca of Arizona, is far less certain, they said.
Although active-adult communities make up only a fraction of all local subdivisions selling new homes, most are massive in scale, take years to reach potential build-out and cost developers far more to build and maintain than other master-planned housing projects, local active-adult builders said.
But as long as there are lots available in existing active-adult neighborhoods - and there are lots of lots - developers of age-restricted communities should see sales grow along with the number of Boomers hitting retirement, Belfiore said.
"It's a good place to be for homebuilders," he said.
The average 55-year-old, just old enough for most active-adult communities, has hardly been immune to the recession's effects of reduced home equity, diminished job opportunities and leaner nest eggs.
From September 2007 to May 2009, U.S. retirement accounts lost about $2.7 trillion - about 30 percent of their value. The slump had a disproportionately high impact on Boomers, according to a 2010 study by the Federal Interagency Forum on Aging Related Statistics.
However, that's because Boomers have far more personal wealth than any other age group, the report said.
Bigger market share
Not all local homebuilders have age-restricted projects, but those with active-adult communities under development rely more on those projects as a revenue source today than they did just a few years ago.
Larger age-restricted communities in Arizona include Shea Homes' Trilogy at Vistancia in the West Valley, Del Webb's Sun City Anthem at Merrill Ranch in Florence, and Sun Lakes developer Robson Communities' Robson Ranch in Eloy.
In 2005, Belfiore said, about 3,000 new homes sold in active-adult developments, nearly 6 percent of the total 54,000 new-home sales.
Last year, he said, 730 out of 7,300 new homes sold were in age-restricted communities - 10 percent.
The industry is counting on continued growth in demand, particularly from a subset of Boomers known in homebuilding circles as "actives."
Homebuilders describe actives in loose terms such as "motivated," "affluent" and "social."
But what really defines an active is the desire to purchase a home in an age-restricted, active-adult-lifestyle community.
Virtually all actives are Boomers, but only about one-third of Boomers are actives, according to Jacque Petroulakis, spokeswoman for Sun City developer and active-adult pioneer Del Webb, which now operates as a division of PulteGroup.
"More and more marketing is being centered around people who are 55-plus," the minimum-age requirement for most active-adult communities, Petroulakis said.
One reason is that actives tend to go house-hunting right around the time they retire, and the number of Boomers expected to retire in the coming decade numbers in the tens of millions.
But local builders said the appeal of 55-and-older buyers extends far beyond anticipated population and market-share growth.
Even after losses in investments and home equity, Boomers still hold a disproportionately large amount of the nation's wealth and are willing to pay a premium for amenities and construction quality - often with cash.
Selling a lifestyle
Recently retired couple Pat and Becky McWaters relocated about a year ago from Portland, Ore., to the Robson Ranch community in Eloy, about 45 minutes south of downtown Phoenix.
"We were looking for someplace to get out of the damp cold," Pat said.
The McWaterses said developer Robson Communities went to extremes to earn their patronage, including flying them out to Arizona and putting them up in free, resortlike accommodations built and operated by Robson inside the community.
Overnight stays allow prospective buyers a chance to "test-drive" the amenities, neighbors and lifestyle, they said, sampling the organized activities, meeting existing residents and touring model homes and other facilities.
"I came here hesitant, waiting for the big, hard sell, but they didn't do that," Pat said.
The sort of red-carpet treatment Robson lavishes upon prospective buyers is typical for active-lifestyle developers and illustrates just how differently the economics of the segment work, especially when compared with the low-priced, aesthetically bare-bones products that builders are marketing to first-time homebuyers.
It also helps explain the challenges and risks associated with selling an active lifestyle, said Deborah Blake, senior vice president of marketing at Robson Communities, which originally developed active-adult community Sun Lakes.
Risk and reward
For decades, active-adult buyers have been the darlings of the homebuilding industry, Blake said, in part because homebuyers in the 55-plus range are more likely to understand the value of quality construction and have the financial means to buy a well-made home.
Still, there are unique financial risks associated with developing massive, lifestyle-oriented communities, she said.
For instance, developers don't have the option of waiting to build promised golf courses, clubhouses and other community facilities, because prospective homebuyers want to see all amenities completed before buying. "When you get to the age of our customers, they're savvy," Blake said.
Del Webb's Petroulakis said building active-adult communities is hardly a get-rich-quick business. The up-front costs are huge, and it can take years to see the return on investment.
Homebuyers in 55-plus communities also take on certain, unique risks, according to a number of consumer-advocacy groups.
One such risk applies to married couples who straddle both sides of the age limit, which usually is 55 years old, based on language in a 1988 amendment to the Civil Rights Bill that gave active-adult communities protection from age-discrimination claims.
For example, a husband and wife whose ages are 60 and 50, respectively, would qualify to live in an age-restricted community because the rules require only one household member over the age limit.
However, if the husband died before the wife turned 55, she would most likely be forced to sell the home and would not be allowed to remain there alone.
Other risks faced by all age-restricted buyers include potential difficulty selling their home because most of today's age-restricted buyers want a home built to their own specifications, and there's no guarantee the next generation will be at all interested in age-restricted housing.
'Good place to be'
Even with the risks, homebuilders with at least one actively selling 55-plus community are relatively well-positioned to weather ongoing economic challenges in the Phoenix-area housing market, analyst Belfiore said.
"The sales rates among active-adult are higher than for other sectors of the market," he said. "It's a good place to be for homebuilders."
Local analyst Mike Orr, who publishes the "Cromfort Report," a daily housing-market update, noted that recent foreclosure rates in the Phoenix area's age-restricted communities have been low compared with the market overall.
Low foreclosure rates have not prevented median home-price declines in those communities, however.
Analysts can track changes in median home price with relative ease in active-adult communities that take up most or all of a particular ZIP code. Among them, Robson's Sun Lakes community near Chandler appears to have fared the best, according to Information Market, a Glendale-based housing-data analysis firm.
It reported that the median home-resale price in Sun Lakes' ZIP code, 85248, decreased by less than 17 percent from 2005 to 2010.
Median-price declines during that period in the three ZIP codes occupied by Del Webb's Sun City and Sun City West ranged from 33 percent to 43 percent. These declines compare with the overall market's drop of about 50 percent.
Last of a kind?
One relative newcomer to the active-adult sector is Scottsdale-based Meritage Homes, which broke into the market in 2001 by acquiring other builders in that market.
Jeff Grobstein, president of the company's active-adult division, said homebuilders currently have two workable strategies to pursue: selling stripped-down homes at the lowest possible price or cultivating a customer base that can afford to pay more for high-quality homes.
Meritage and several other Valley builders believe the wisest path is to pursue both strategies simultaneously.
With construction lenders now more reluctant to finance large, expensive residential projects and an upcoming generation of homebuyers who appear to be more urban-oriented and carbon-conscious, Grobstein said there is a chance that the latest batch of active-adult communities could end up being the last of their kind.
Still, he said, projected growth in retirement-age Boomers, a group whose number is expected to peak just below the 90 million mark, should provide today's active-lifestyle builders with plenty of qualified customers.
"There's no question that that generation carries the wealth," Grobstein said, "but you still have to be able to show them a great value."
Active-adult communities selling new homes
- Sundance (Buckeye) - Meritage Homes
- Sun City Festival (Buckeye) - Del Webb
- Ironwood Village (Casa Grande) - Keystone Homes
- Mission Royale (Casa Grande) - Meritage Homes
- Robson Ranch (Eloy) - Robson Communities
- Sun City Anthem at Merrill Ranch (Florence) - Del Webb
- CantaMia (Goodyear) - Joseph Carl Homes
- PebbleCreek (Goodyear) - Robson Communities
- Province (Maricopa) - Meritage Homes
- Sunland Springs Village (Mesa) - Farnsworth Homes
- Trilogy at Vistancia (Peoria) - Shea Homes
- Trilogy at Encanterra (Pinal County) - Shea Homes
- Arizona Traditions (Surprise) - D. R. Horton
Source: Belfiore Real Estate Consulting
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