Belmont Nursery, located in Fresno, California, is a unique business because it includes nursery production, greenhouse production and a retail garden center. Jon Reelhorn is the owner, and he runs the place. A Californian through-and-through, he was born in Stockton where he developed a love of baseball. He’s 6’5” and lean, and when you hear he used to be a pretty good pitcher, you believe it. He was drafted by the San Francisco Giants right out of high school, but he chose to go to Fresno State University on a baseball scholarship. He was drafted again by the Philadelphia Phillies in 1980 and chased his boyhood dream for four years before putting that plant sciences degree to work.
Belmont Nursery is located in California’s Central Valley, an agricultural hotbed that gets quite literally hot. Temperatures routinely hit the triple digits and stay there for weeks. However, it cools off into the 70s and high 60s at night.
“We like to think of it as nice in the morning and nice in the evening,” Jon says.
It works for growing Belmont’s mix of annuals, perennials, shrubs, trees, houseplants and succulents. Yes, it’s hot in the afternoon, but you get used to it. Or you work around the worst of it. During the summer, Jon’s field crew starts work at 6 a.m. and goes home between 2 and 2:30 p.m.
“If it’s 98 (degrees), that’s a breeze,” he says. “If it’s 102, that’s no big deal. If it’s 105, yeah, they’ll want to work in the shade in the afternoon.”
Still, Jon wouldn’t trade it. He loves the natural beauty of Yosemite and Kings Canyon National Parks. He enjoys the fact that he can leave work and be hiking with his yellow lab, Crash, among the giant sequoias in less than an hour. Crash, you might guess, is named partially for Crash Davis, a character in the 1988 film Bull Durham, which chronicled the travails of a minor league baseball team.
An unorthodox succession plan
After playing a few years of minor league ball, Jon got his start as a salesman with a bit of production knowledge. He worked for Alameda Gardens, a Southern California wholesale grower that has since gone out of business, selling mainly to independent garden centers. He traveled through the Central Valley making sales calls between Bakersfield and Modesto.
“Nobody else wanted that territory; they thought it was the armpit of California,” Reelhorn says. “I thought it was great because it was small.”
Fresno is almost directly in the middle of that 200-mile Bakersfield-to-Modesto drive. That’s where he first visited Belmont Nursery and met the second-generation owners, Jerry and Varrel Palmer.
The Palmer family had run Belmont Nursery for 50 years over two generations. Vic and Ruby Palmer passed it on to Jerry and Varrel Palmer, but there were no viable third generation owners. Jon had been in the industry for about 15 years at this point, and he occasionally sold plants to the Palmers. One day, he asked Jerry what he planned to do about the nursery. When Jerry told him he wanted to retire but he didn’t have anyone willing to take over, Jon said, “I’d be interested.” Jerry’s eyes lit up and a huge smile creased his face as he almost incredulously said, “You would?”
Jerry, who became a mentor and father figure to Jon, was thrilled to have someone show interest in buying the nursery.
Two weeks later, Jon called on the nursery again and Jerry gauged how serious Jon was about the proposition. After some negotiations, about a year later Jon was brought on as general manager. He worked with Jerry for about a year as a transition, “to make sure I knew what I was doing,” Jon says. After that, he sold Jon the nursery.
Jerry is happily retired now, but he still brings the mail in and gets a cup of coffee every morning, because he lives in a house on the property.
Even though Jerry sold the nursery to Jon, he said he wasn’t quite ready to quit working. So Jon asked him what he’d like to do. Jerry said he wanted to be a truck driver. He’d always liked driving tractor trailers, and he likes to talk to the customers while unloading their plants. He wouldn’t tell them he was the previous owner, though, Jon says with a laugh.
Changing the mix
When Jon took over, about 95% of Belmont Nursery’s customers were landscapers.
As he knew the garden center market well, he tried to change the product mix at Belmont to offer more of what garden centers want. Instead of only landscape shrubs, he’d add 1-gallon geraniums, for example. He chased that market for years, and it was largely successful.
But the turning point for the business came when Jon signed up for the Executive Academy for Growth and Leadership (EAGL) program.
EAGL is an executive ‘mini-MBA’ curriculum tailored to the nursery and greenhouse industry, developed in collaboration with Dr. Charlie Hall, Ellison Chair for International Floriculture at Texas A&M University.
This University-recognized certificate program has been designed particularly with the challenges of contemporary wholesale growing businesses in mind.
For nine months, Jon was able to focus and collaborate with his peers and work to improve his company’s competitive position and profitability. Dr. Hall and the other EAGL faculty helped him narrow down his business’ scope and focus on where they were making money. And for Belmont Nursery, it was retail garden centers.
“We were trying to serve too many masters,” Jon says. “When we focus and say, ‘This is what we do well, and this is who we should be serving because we have a competitive advantage in that area.’ Well, that was selling to retail garden centers. They liked us, so they ordered week after week, which just tickles me. And then it's the same product we could sell at retail.”
In a matter of 5-7 years, Belmont’s customer base changed from about 5% retail to about 50% retail.
“Sure, there are some challenges in that,” Jon says, “but guess what? I'm not selling a $3 geranium anymore. Now I'm selling an $8 or $9 geranium. And it doesn’t take a rocket scientist to know that it's better to sell the same plant for more.”
Belmont’s target customer is the homeowner with a project. They position themselves with branding as “Experts to the Experts”, touting their expertise as the go-to plant supplier for landscape professionals and retail garden centers. They back it up with eight California Certified Nursery Professionals on staff. However, that direct-to-customer business tends to dry up in the hottest parts of summer in the valley, when local homeowners aren’t planting because it’s too hot. That’s why selling their Belmont-grown items to retail garden centers is crucial to Belmont’s business plan. In the dog days of August, when it’s 100 degrees in the Central Valley but it’s only 80 degrees in the Bay area, customers there are still buying and selling. Those garden center customers are eager to buy plants from Belmont and sell them to their customers.
Jon also expanded the company’s shipping range past Northern and Central California into the Pacific Northwest.
On the growing side of the business, Belmont uses its climate to its advantage in several ways.
“It's hot here in summer, but some of the best growing conditions in the world are here between Feb. 15 and June 1,” he says. “And then in the fall between Sept. 15 and about Nov. 1 or Thanksgiving.”
Because of those excellent conditions, warm enough but not humid, plenty of sun and long days, Belmont is able to send a rose in bloom to its Pacific Northwest customers even long before Mother’s Day.
Jon has no desire to grow Belmont any larger than it is. The nursery will always be a regional supplier.
“We don’t want to get bigger; we just want to get better,” he says.
Labor is certainly one of the biggest challenges for a nursery, whether it’s in Ohio or California. Federal and state regulations make it difficult to do business properly, Jon says.
“I tell people I grow flowers for a living, but what I really do is workman's compensation and water quality testing for nitrites and crazy stuff like that, which I don't need a degree in plant science to do,” he says.
The Central Valley is not as densely populated as the cities along the coast of California, but as urban sprawl continues and the town grows closer to the nursery, will the grower still be able to spray crops or will they have to find a new way?
California residents are typically under water use restrictions due to the state’s widespread drought. The state’s water board determines best practices for monitoring water use for homeowners, agricultural and horticultural producers.
The board has discussed putting together a plant palette, telling the growers what they can grow and what they can’t grow. For instance, a flower that takes more than their allotted amount of water to grow might be banned. The fact that people making those decisions don’t know the amount of water needed to keep a plant alive – or don’t deem plants important enough to adjust their plans -- is a scary thought for a nursery owner. It’s another reason Jon believes it’s imperative for growers to get involved in politics. They need to help their elected officials and representatives understand the fuller picture. They need to talk to the water board members, help them see that draconian restrictions might drastically reduce water consumption, but at the cost of not allocating enough water for homeowners to have plants in their front yard.
“If we’re not on the ball, if we’re not talking to our legislators and watching what’s coming down, if you’re not involved in Plant California Alliance or your farm bureau, you’re riding somebody else’s coattails and saying, ‘I’m not going to participate,’ well, then somebody else predicts your future,” he says.
“And that happens an awful lot. There's an awful lot of people that don't participate. They don't want to pay their dues, or they don't want to get involved. And so now the legislator doesn't understand how limiting the amount of water that a homeowner can use can decimate our industry.”
It frustrates him that horticulture, which is a $3 billion industry in California, is so fragmented and that it doesn’t have a stronger voice in government. He appreciates AmericanHort’s unified voice for the industry, especially the work senior vice president for public policy and government relations Craig Regelbrugge does to ensure the concerns of the grower are heard on a national level.
Work like that is what caused nurseries to be deemed essential businesses during the COVID-19 pandemic. Being able to stay open and sell when so many other businesses were forced to close was the key factor in many growers and garden centers having tremendously successful years. It’s $295 for a basic AmericanHort membership, and Reelhorn says every green industry business got their money’s worth last year.
“You won’t pay $300 to be able to stay open during the pandemic? How much was that worth, right?” he asks.
The pandemic itself was a boon for Belmont’s business, like many other growers and retailers in the industry. And although there is a pervading feeling of luck that the nursery industry was able to thrive when many others were unable to even survive, Jon knows that even if he feels lucky to be where he is, he owes it all to hard work by a talented group.
“It's certainly not luck because, without Craig Regelbrugge and without the people representing us in either Washington D.C. or Sacramento and convincing the people that are making the decisions that were essential, we could have just gone away,” he says. “We were ready to just fold up and say, ‘Okay, we can just keep many people on as it takes to keep the plants alive, but otherwise who knows what's going to happen?’ You lay a few people off and then two weeks later you're hiring them back and two years later we're still running. So, we feel pretty fortunate about just being in that position because there was an awful lot of people that weren't.”
Reelhorn is currently vice chairman of the AmericanHort board and has held leadership positions with the American Nursery and Landscape Association and the Horticultural Research Institute before that.
Now that he’s one of the “old guard” he tries to maintain that inclusivity that helped him feel at home when he was the new kid on the block. He first got involved with ANLA when he bought Belmont Nursery in 2001.
That year, he was looking for support as a new business owner who knew plants and sales but needed help with managing his company. So, he traveled across the country to the ANLA Management Clinic, a move he says “took a lot of guts.”
He still remembers walking into the event in the middle of Kentucky, not knowing anybody, and meeting Louis Hillenmeyer at the check-in. The founder of Louis’ Flower Power Shop, a central Kentucky retail garden center, he was a local guy, full of personality.
“He was so kind, he introduced me to the program,” Reelhorn says. “Every time I'd walk by later in the event, he'd say hello to me. It just made you feel like you were part of the family. And you can just tell that there's something really good about this group, because even if you’re a newbie from California that didn't know anything, he treated you really good.”For more: www.belmontnursery.com
(Editor’s note: for part one of this topic, see our August cover story)
The increased business that headed to horticulture during the COVID shutdown has resulted in a high level of working capital. Nurseries are flush with cash, but what are they spending it on? It’s a good problem to have, but many growers don’t have much experience with this particular problem. Business owners are looking for a prudent course of action.
Saunders Brothers is nestled in Piney River, Virginia, under the shadow of the Blue Ridge Mountains. Tom Saunders manages the wholesale container nursery at his family’s business. He says Saunders Brothers had a record year in 2020.
“We hit a little slow spell in April/May due to the pandemic and then the wheels came off,” Tom says.
The Virginia grower is known for boxwood, and the Saunders Genetics branch of the business has developed two boxwood blight-tolerant and leafminer-resistant cultivars under the NewGen name: Independence and Freedom. Demand for boxwood has been strong but Saunders is making adjustments to its other offerings.
“While Buxus sales are through the roof, we’re continuing to tweak our total product mix,” Tom says.
The nursery chose to use some of the cash from its pandemic windfall to invest in automation. Saunders Brothers bought some potting equipment and some pruning equipment that would help them get more done with fewer hands to do it.
“We were concerned that if we lost our H2A’s we wanted to be more labor efficient,” Tom says.
Expansion isn’t in the cards for Saunders Brothers, and Tom sees some challenges heading into 2022. Chief among them are the costs associated with supply and transportation.
“All input prices are up as well as freight and it’s hard to find trucks to move our product,” he says. “Because input prices have increased, we’re raising our prices.”
Jeff Burch, managing director of Southwest Food & Agribusiness at Bank of the West, says growers in his region are spending their increased profits on facilities, including equipment and other improvements. The decision to spend cash on those types of projects are tied to increased labor costs and the continued struggle to find enough workers, he explains.
“Companies are now finding equipment purchases to be more cost effective. Most employers are looking anywhere they can to reduce labor needs these days,” he adds.
Burch also heard from some operations that elected to purchase previously leased warehouses and other buildings, while others made improvements to provide better conditions for labor or to better protect crops.
“One operation built an employee lunchroom with lockers and televisions to try and improve working conditions for the labor they need to retain. Another client improved their growing yards given weather conditions, such as heat and high wind, seem to be becoming more extreme. I had another client pay to tie into city water as a backup in case their well water dries up or if they have a problem with their pump.”
Burch says to be strategic with spending, including paying down debt or, if a grower is struggling with labor, look at investments that either lessen the need for more labor or improve working conditions.
“Don’t bet on growth. Always make sure you have the sales and are not exposing yourself by putting out large amounts of plant volume betting the sales will come,” he says.
Belmont Nursery in California also had two of its best sales years ever. But owner Jon Reelhorn doesn’t want to expand his business.
(Editor’s note: hear more from Jon in our cover story)
“We don’t want to get bigger; we want to get better,” he says. “We're continuing to work on efficiencies. Perhaps now I can afford some equipment that I could not before.”
Like Saunders, he’s looking for ways to become more labor-efficient -- to be able to get more done with fewer or the same amount of people. After a close look at where the automation upgrades would help most, Jon decided to purchase a new pruning machine and a few more conveyors.
“We’re just a little guy, but those are significant for us,” he says.
With the global supply chain shortages, there is a backup on equipment like this. But Jon still decided to move forward knowing it might be a while before he’s able to get those machines up and running.
He’s also aiming to patch up some holes in his company culture that developed during the pandemic. His staff did a great job while they were busy reinventing their business on the fly. They were all-in to make Belmont Nursery succeed however they needed to, whether it was running product out to the curb for a COVID-friendly curbside pickup or shopping for customers over the phone. But as the new reality of business in the age of COVID protocols dragged on, his employees that burned so bright at the beginning of the pandemic began to burn out.
“We did it on sheer adrenaline in year one,” he says. “Then year two hit and we thought it was going to back off. But it didn’t, and we couldn’t hire people fast enough. And so our company culture took a hit. Because we're so busy selling, we forgot to maybe say thank you to our staff or reward them well enough. Or maybe they're just tired.”
Halfway through spring 2021, Jon really began to notice and decided they needed to get back to basics. They needed to bring back the onboarding process for new employees and recognition ceremonies for five years of service – all the little things that they stopped doing because they were so busy selling, but when taken as a whole, add up to the kind of company culture that makes employees feel valued. Jon wants to invest in his company in ways that make it a good place to work. As such, he’s bringing consultant John Kennedy in to help him implement The Great Game of Business at Belmont. This business strategy, based on the best-selling book by Jack Stack and Bo Burlingham, educates your employees, rallies them around a common goal and engages them by giving them a stake in the success of the company.
“I've always wanted to do this, but it's a big lift,” Jon says. “Sharing information with the staff and engaging them in decision-making, and as John would say, holding them accountable.”
Jon has been a fan of Kennedy’s since seeing him speak at an ANLA Management Clinic years ago, but he believes Kennedy’s energy will be key to re-igniting his employees’ spark.
The rising cost of agriculture inputs is not a new phenomenon. The 2017 Census of Agriculture reported per-farm expenses at a record $159,821, up from $155,947 five years previous. Income over the period fell slightly, according to the census, from $43,750 in 2012 to $43,053.
While a new census isn’t due until 2022, industry onlookers are not expecting much change on the input side. Burgeoning expenses for seed, fertilizer and plastic containers – combined with a shallow labor pool - has forced owners to raise prices and automate some processes. Experts and growers forecast a longer period of adjustment as inputs level off at the higher end of the pricing scale.
An Index of Prices Paid by Growers study orchestrated by Texas A&M economist Charlie Hall determined the overall cost of producing nursery and greenhouse crops is about 29.6% higher in 2019 than it was in 2007, with labor experiencing the largest uptick at 41.6%
These numbers reflect an overall necessity to harness available resources more efficiently, notes Ariana Torres, associate professor of the department of horticulture and landscape architecture at Purdue University.
“Looking at a typical agricultural product, you plant at the beginning of the growing season and harvest at the end of that season,” says Torres. “With nurseries you have to plant years ahead of time.”
To maximize yield, it’s crucial for nurseries to aid their harvest with agricultural inputs. Inputs are any external source that can assist a grower’s yield – from high-quality seeds and containers to freight and irrigation systems. Nursery labor is another input that has been impacted by a shallow talent pool across industries, observers say.
Torres says today’s mushrooming input costs harken back to the shock recession of 2008, when many nurseries closed, merged or simply went bankrupt. Those that survived decreased inventory, while adjusting to peaks in demand coinciding with the housing bubble of the early teens.
Natural disaster risk has caused additional uncertainty in recent years, even as the advent of the “COVID gardener” supplemented marketplace demand. Prior to this year’s growing season, research from Axiom Marketing found that 86% of homeowners planned to continue gardening well into 2021.
Input costs for containers, soil mixes, agrichemicals, fertilizer and irrigation parts are mitigated depending on exactly who your nursery is selling to, observes Torres.
“Nurseries growing seedlings or transplants are selling young plants to other nursery growers that will then finish those plants,” Torres says. “But prices of young plants have not kept pace with increase in prices for irrigation, containers, fertilizers and chemicals. The growers at the beginning of the value chain are seeing increase in demand way later than finishers selling to end users. The closer you are to the end user, the more the increase in demand will help you.”
A parade of price hikes
Manor View Farm in Monkton, Maryland, is a wholesale producer of trees, shrubs and potted liners sold to growers and wholesalers in the Mid-Atlantic region, including the District of Columbia.
Upon purchasing the business in 2007, co-founder Alan Jones and two partners expanded their supplier network and field propagation production, while diversifying their customer base. Sales dropped during the Great Recession, taking almost a decade to return to 2007 levels.
“We had one good year and then the recession hit,” says Jones. “Understanding our numbers and providing good service to customers helped us survive.”
The last four years have seen strong demand for items like liners, a trend that soared during the pandemic as more homeowners took to gardening. Manor View also requires the inputs of a regular nursery, undergoing a 20%-25% increase in costs for plastic and pots.
Labor continues to be a problem in the sector, says Jones. Though Manor View has tapped into the H-2A temporary agriculture guest worker program, government restrictions have stifled efforts to completely curtail an ongoing large-scale employee shortage.
Jones says, “People are not interested in working outside, and there’s not as many people around looking for seasonal work. So we’ve looked at pay rates, and asked ourselves what kind of equipment we can bring in to make the work more efficient. We’ve also hired young people with good computer skills who are able to learn the plant side of the business quickly.”
Labor and transportation, meanwhile, are the largest cost inputs for McCorkle Nurseries, a 820-acre landscaping and growing operation headquartered near Augusta, Georgia. The company, which delivers to customers in the southeast and Mid-Atlantic, has been impacted by driver shortages as well as Texas transport firms idling their trucks during February’s devastating winter storm.
Input costs at McCorkle have risen about 8% to 11% year-over-year, even as profits since 2016 have remained steady. Clients include big box regional garden centers and smaller-scale retailers, two areas that received a boost during the pandemic.
“We experienced a bump of 11% from 2019 to 2020,” says vice president of operations Chris McCorkle. “We had perfect weather for the entire year. COVID extended the season for several months.”
Responding to an uncertain future
Steady revenues aside, transportation issues challenged McCorkle to meet peak season demand. The nursery dealt with supply chain slowdowns by ordering pots and other vital materials months rather than weeks in advance.
Similar to many of its industry brethren, the company raised prices about 10% in response to the escalation of input costs. Regarding transportation, McCorkle ships products in trucks packed as close to capacity as possible.
“Most customers see the handwriting on the wall and know that in some of our input categories there’s been price increases,” McCorkle says. “They recognize the need for us raising prices where appropriate. Material costs are being felt throughout the supply chain.”
Manor View has elevated prices while keeping close watch on profits that have dropped slightly in recent years. Co-founder Jones projects an industry-wide jump in costs next spring, reacting to plant material shortages and recent extreme weather events. He also wonders how long the current COVID gardener phase will be able to sustain the marketplace.
“There’s been a huge increase in homeowners growing vegetables, but how long is that going to continue?” says Jones. “How do we maintain that interest moving forward?”
Torres of Purdue University believes efficiency will be the watchword for growers planning ahead. Automated processes that produce maximum yield at reduced cost is one option for forward-thinking growers, as is introduction of vigorous plant stalks able to withstand environmental stress.
Rather than relying on expensive labor, successful owners are also utilizing technology to mix container substrates.
“Mixing substrates or managing irrigation are easily automated tasks that will save nurseries money,” Torres says. “If your operation is labor-intensive, technology is a big gain for you.”
All is not gloom as the industry ascertains its new normal, observes Barry Sturdivant, vice president of TS Ag Finance. For starters, most retailers have been cooperative in integrating the higher price points nurseries need. Nor does Sturdivant feel the market requires as much diversification in plant varieties and species as it had previously.
“We’ll see fewer SKUs going ahead,” Sturdivant says. “That’s one way to reduce costs and become more efficient.”
Inflationary pressures surrounding labor and other inputs will likely keep those prices at a high level. However, Sturdivant believes nurseries are in better shape to withstand the storm than during previous economic down periods.
“After the last recession, I was worried about the industry coming back with too rapid growth,” says Sturdivant. “But the growth was slow and responsible, where owners increased inventory by a conservative margin each year instead of planning fence row to fence row. The industry as a whole is in a much better position now.”
In July, the Congressional Budget Office revised its outlook from earlier in the year, projecting stronger economic growth for the next decade.
“As the pandemic eases and demand for consumer services surges, real (inflation-adjusted) gross domestic product (GDP) is projected to increase by 7.4% and surpass its potential (maximum sustainable) level by the end of 2021,” according to the CBO’s budget and economic outlook for 2021-2031. “The annual growth of real GDP averages 2.8% during the five-year period from 2021 to 2025, exceeding the 2% growth rate of real potential GDP. Over the 2026–2031 period, real GDP growth averages 1.6%, which is less than its long-term historical average, primarily because the labor force is expected to grow more slowly than it has in the past.”
The CBO reports that employment “surpasses its pre-pandemic level in mid-2022” and the unemployment rate declines through 2022 “and then remains near or below 4% for several years.”
The CBO’s projections for stronger economic growth are due a few factors including: the office expects “recently enacted fiscal policies to boost output;” and the CBO has “raised its estimate of the consumer spending that results from the additional savings that households accumulated during the pandemic. As a result, the agency’s projections of inflation are also higher than the projections made in February, as output now exceeds its potential level sooner and by a larger amount that previously anticipated, reflecting the more positive outlook for economic growth.”
A recent Deloitte U.S. forecast anticipates the economy in 2022 will outperform its pre-pandemic assumption. In a second quarter U.S. economic forecast report, Dr. Daniel Bachman writes, “It’s beginning to look as though we’ve not only avoided the “scarring” that many economists feared at the beginning of the pandemic—we’ve also accelerated technological change, meaning that productivity growth, and GDP, are likely to remain above pre-pandemic levels.”
Bachman is a senior manager for U.S. macroeconomics at Deloitte Services LP.
He says the economy is poised for strong growth in part because “business finances are healthy,” and households have significantly more savings and “consumers in aggregate didn’t take on more debt.”
Deloitte expects business spending to be “reasonably strong,” but investments “in structures – especially office and retail buildings – is likely to lag.” [Editor’s note: This will have an impact on landscape contractors who specialize in commercial jobs.]
In 2020, “households saved about $1.6 trillion more than we forecasted before the pandemic,” Bachman reports. “How much of that will they spend as the pandemic impact wanes?” The answer to that question isn’t quite clear, as he gives two scenarios. Either the consumer “remains cautious” and holds on to those savings or they go on a “spending frenzy,” potentially creating a negative savings rate, he says.
“The baseline Deloitte forecast assumes a modest decline in the savings rate below its long-term level, and that’s enough to support very strong growth in consumer spending this year,” he writes.
A Zillow Research report from May 2021 predicts “today’s housing market won’t turn into 2008’s.”
The Zillow Research team backs up that claim by saying “housing supply is extremely tight — arguably the one factor most dramatically different today from the 2008-era market, when a wave of foreclosures following years of robust homebuilding pushed supply well ahead of demand and led prices to collapse.”
Zillow expects demand will stay strong “as the large millennial generation continues to age into homeownership, and more inventory is expected to soon hit the market — bringing more balance to the market and creating a smoother experience for everyone.”
Expanding on the demographic shift, Zillow notes it’s been steadily unfolding for the past several years.
“The massive millennial generation — some 72 million strong in 2019 — the oldest of whom are approaching their 40s, is aging into their prime career-building, family-starting and home-buying years. The median age of first-time home buyers is generally in the early-mid thirties, and there are tens of millions of Americans at or approaching that threshold.
“The combined numbers of millennials turning 34 over the next decade — the median age of first-time home buyers in 2019 — is roughly 46 million, the largest such number expected to reach that age in a single decade. The previous record prior to the millennial generation was in 1989, when there were about 43 million 25- to 34-year-old boomers. And as millennials age, there are millions more of their younger peers in Gen Z behind them waiting in the wings. It adds up to millions of potential new buyers in years to come — representing ‘built-in’ demand that is extremely unlikely to fade even if market conditions change in coming years.”
Zillow also expects historically low mortgage rates will help “stretch buyers’ budgets by keeping monthly payments relatively affordable.”
When it comes to supply, Zillow notes, “the glaring lack of homes available to buy relative to robust demand is probably the most visible (or invisible) trend defining the housing market in 2021. This mismatch between limited supply and sky-high demand is the single-largest factor driving home values up at a record pace, and the time homes spend on the market before selling to record lows. It is also arguably the one factor most dramatically different from the 2008-era market, when a wave of foreclosures following years of robust homebuilding pushed supply well ahead of demand and led prices to collapse.”
Deloitte’s Bachman has a different viewpoint of housing demand and interest rates.
“Homebuilder confidence has remained above pre-COVID-19 levels but has moderated from its peak at the end of 2020,” he writes, and Deloitte expects “demand to cool due to reduced affordability.
Bachman says interest rates are “set to rise in the forecast as the recovery gathers speed. Despite the slowdown, demand is likely to exceed supply as builders continue to grapple with rising lumber prices and land-use restrictions. Home prices are therefore likely to rise further through the forecast period.”