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Tuesday, 27 March, 2001, 14:58 GMT 15:58 UK
Why the US housing market is still booming
New luxury homes for the baby boom generation are boosting the house building sector.
Toll Brothers features this 'Savoy' model at its development near Columbus, Ohio, for $431,000.
By BBC Online's North America business reporter, David Schepp.

The stock market may be tanking, but in the United States the housing market has been relatively unaffected.

Although new home sales may have shown a small overall drop in February, builders expect the building of new homes for the nation's middle-aged and retired population to expand strongly.

The baby-boom generation (generally, those born from 1946 to 1964) may be aging but they still outnumber all other age groups in the US, and they represent a lucrative new source of demand for the housing market.

As they move toward their retirement years, the lifetime of wealth that they have accumulated is showing up in the types of homes they are demanding - and falling interest rates mean that they can afford to buy even more.

Analysts say the number of people aged 55 to 64 will increase by almost 50% in the next decade, and their need for housing that matches their lifestyle and desire for internet-age conveniences.

"They're housing preferences can't be satisfied in the resale market," Toll Brothers Chief Financial Officer Joel Rassman told the BBC. "The type of housing they want... with offices downstairs, large master bedroom suites, etc., isn't out there in the markets."

Toll Brothers, which calls itself a "luxury-home builder," designs and builds single-family and attached homes in the Northeast, Southwest, South, Midwest and West, around some of the country's wealthiest and most populous cities.

Baby-boomer boom

Toll Brothers finds itself in good company, with other companies such as Del Webb, Lennar and Pulte hoping to cash-in on the burgeoning demand not just for luxury homes but for "active-adult" communities, too.

Empty-nesters, whose children have left home, are in search of more leisurely lifestyle and smaller homes - a new niche that homebuilders want to be a part of.

"It's now becoming more apparent to the rest of the industry that this is the place to be," says Ian Jacobs, analyst at Goldman Sachs, who adds that homebuilders are looking to raise the number of homes they are building in this burgeoning sector.

"The companies that are involved... are in position to take advantage of a pretty significant growth area over the next decade," says Legg Mason analyst David Weaver.

These builders are reinventing the idea of "retirement communities," in order to appeal to baby boomers who want no part of traditional retirement homes.

"As today's boomers age, they don't want to be treated as old people," says Eric Jemetz, senior equity analysts at New Amsterdam Partners in New York.

Location, location, location

And unlike many traditional retirement homes, today's active-adult communities are smaller, more intimate, with some in close proximity to big cities, shore lines - such as one Toll Brothers community in New Jersey - or adjacent to golf courses.

That type of location also shows up in the purchase price. Homes in these developments start at around $200,000 (139,400), with some far exceeding $500,000.

One reason baby boomers can afford to be so finicky is that many of them are flush with cash - unlike their Depression-era parents, who may not have been able to strike it quite so rich.

Spurring the demand for such housing are low mortgage rates.

Even as Monday's Census Bureau figures showed an overall decline, demand for mortgages in the Northeast rose an astounding 20.3%.

A year ago, 30-year mortgages averaged 8.23%. Now, after three interest-rate pullbacks by the nation's central bank, rates average 6.83%, promising, at least, to keep the nation's housing industry out of the doldrums that is affecting other areas of the economy.

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