Real Estate

Home builder's new sweet spot: the 55-plus crowd

Pulte's 2015 housing strategy
Pulte's 2015 housing strategy

On a mild December day, about an hour's drive from Atlanta, heavy competition going on. Pool volleyball, pickleball, mahjong, and a big bet by a big home builder on how the nation's nearly 80 million baby boomers want to live. At Sun City Peachtree, Pulte Homes has already put about 800 new homes in the ground, and the plan is for about 2,600 more.

"We have really seen a resurgence in the active adult market. It typically comes back a little slower than the rest of the market, but for the first three-quarters of this year, our sales comps for active adult are up 22 percent," said Richard Dugas, CEO of Pulte Homes.

Pulte Homes' Sun City "active adult" community in Georgia.
Diana Olick | CNBC

Sun City is one of 50 so-called active adult communities under Pulte's Del Webb brand. The homes, restricted to buyers aged 55 and older, are just a small selling point. The lifestyle is the real draw. A large amenities center sits in the heart of the community, pumping out an endless array of activities, from crafts to choir, travel to genealogy, pinochle to softball and beyond.

"Quality of life counts for something," said Steve Sutton, 58, while riding a stationary bicycle in the center's large health club.

Sutton and his wife still work full time, but their kids are grown and gone, and they wanted to downsize out of their larger suburban home. They still make the trip into Atlanta to see friends, but they had no desire to live in the city, contrary to the common expectation of this active older generation.

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"Yeah, I don't get that," admitted Sutton. "We wanted to get in here early enough to use as many of the amenities as possible. Why wait until things break down, which they will."

Even if some boomers do want to lead more urban lifestyles, their sheer numbers make this a smart play. Home builder confidence in the active adult segment has been rising all year and is now at the highest level since the National Association of Home Builders (NAHB) began tracking it six years ago.

"The consistent rise in home equity has contributed to the strong gains in the 55-plus housing market," said NAHB Chief Economist David Crowe. "Many consumers who had been sidelined due to the inability to sell their current homes at an acceptable price are now in a position where they can sell their homes, enabling them to rent or buy in a 55-plus community."

The only roadblock, as with the rest of the housing market, is credit.

"They are actually the group that has a really tough time getting a mortgage because once you retire, you can't document your income, and even though you may be wanting a 40 percent loan to value mortgage, the banks aren't making the mortgage to those folks," said John Burns of California-based John Burns Real Estate Consulting.

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Several decades ago, the vast majority of Pulte's Del Webb buyers were retired. Now about half of them are still engaged full- or part-time in the workforce. Nearly half of buyers at Sun City Peachtree paid cash, according to Pulte.

"The rest of them actually take a very conservative mortgage, so rates are not a factor for them. It is more about their equity and their nest egg, which has grown in the past few years, which is why we are seeing this category really do well right now," said Dugas.

The homes, which are generally small, one-story structures, also come at a low price point. At Sun City range from $150,000 to $380,000. As for future home appreciation...

Pool volleyball at Sun City
Diana Olick | CNBC

"I've got a reverse mortgage. I don't care," said Ron Sparks, 71, who bought his Sun City home two years ago. Sparks is more interested in keeping his daily standings in a seemingly constant pool tournament.

Pulte is the largest player in the active adult housing category, but others, like K Hovnanian's "Four Seasons" brand, are highly competitive. Lennar,Taylor Morrison and WCI are also focusing on the segment, but not necessarily restricting the communities.

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"A lot of these primary builders are just building homes targeted to the age of 55; anyone can move into them, but in the floor plans, which generally are very livable, they don't have a lot of stairs, don't have small bedrooms for the little kids. There is a lot of demand for 55-plus floor plans," noted Burns.

The floor plans, though, still play second fiddle to everything going on outside the front door. The builders are making sure these new communities have everything that could possibly be defined as "active."

"Trying to do everything around here, it's like a full-time job," said Sparks, chalking up his cue for the next shot.