With the real estate market near or at the bottom of the cycle, many investors are looking for opportunities. Not only do you want to buy at bargain prices but you want to buy properties that will deliver the highest return going forward. One of the attributes to that decision is the length of time you intend to hold the property. In the short term, you need only know what the market is looking for today.

A purchase and hold decision takes considerably more insight as to where the market will be in future years. Long after you’ve decided what and where to purchase at the bottom of the current cycle.

The Urban Land Institute recently released a report titled: Housing in America – The Next Decade. The most important observation made in this report is that “the old “normal” will not return”. As the market recovers, it will take on different characteristics than it had in the past.

Specifically, where people want to live will change from suburbia to urban settings. This fundamental change is being driven by the four largest demographic age groups in the country.

• The aging baby boomers, the oldest of whom are now in their mid-60s.
• The younger baby boomers in their late 40s and early 50s.
• Generation Y, the children of the baby boomers. Together they make up over half of the entire population.
• Immigrants, their children, and grandchildren, whose numbers are growing more rapidly than “native-born” households.

The older baby boomers are expected to delay moving into retirement homes and assisted care facilities for about 10 years longer than their parents did. For many, the decline in house values along with large first and second mortgages means they will not be moving any time soon. At least until they recover a significant amount of their lost equity.

Seventy five percent of those preparing to retire report they want to live in multi-age and multiple use communities. They want to be in an urban environment but they don’t want to be in the middle of the city. What they are looking for are urbanized town centers where they can walk to both conveniences and necessities. Places like Bethesda, Maryland, Reston Town Center in Reston, Virginia, and White Plains, New York.

The younger baby boomers are less likely to move. They still have two decades or more to work and have already moved up to better housing. Don’t look for this group to be a dominate factor in the future residential market.

Generation Y is already a more urban creature and faces significant economic challenges when it comes to homeownership. Expect them to remain in the rental market much longer than their parents did. When it comes to purchasing a house, they will be looking for small houses on small urban lots that they can afford.

The combination of older baby boomers migrating to more urban settings, younger baby boomers staying put, and generation Y already in the urban environment will restrain suburban house prices for years to come.

Not enough is yet known about the housing behavior of immigrants. What is known is that the Latino population is the largest and fastest growing minority group in the country. What is also known is that the second generation of immigrants tends to assume a lifestyle typical of multi-generational Americans. That is to say, they become mainstream. The one notable exception with the Latino population is they tend to prefer larger houses because they have larger families and live with multiple generations in the same household. Their recent housing trend is away from the inner city to the close-in suburbs at the edge of the cities. What remains unknown is if this will continue or if they will continue into the outer suburbs to fill the void created by older baby boomers and generation Y moving into the city.