The Anatomy of Today’s Homebuyer

The real estate market is somewhat of an enigma these days, with some metro markets booming while others are showing signs of slowing. But no matter whether we examine supply shortages or interest rates, rising rental costs or increasing urbanization, there is one thing that matters most: home buyers.  In fact, homebuyers are so important to the housing market they’re like the engine, the fuel and the steering wheel of the car!

For sellers looking to gain a competitive advantage and net top dollar, understanding homebuyers is more critical than ever. By looking at who they are, what they value, and how they operate we can really market your home sale with maximum efficiency.

So what do today’s homebuyers really want?

Modest floor plans

Surveys show that American homebuyers are starting to walk away from the cavernously large McMansions, and want slightly smaller floor plans with more warmth and style instead.

The ideal home size in 2000:

9%   800-1,400 sq ft

28% 1,401-2,000 sq ft

27% 2,001-2,600 sq ft

13% 2,601-3,200 sq ft

9%   More than 3,200 sq ft

The ideal home size in 2015:

9%   800-1,400 sq ft

32% 1,401-2,000 sq ft

27% 2,001-2,600 sq ft

12% 2,601-3,200 sq ft

6%   More than 3,200 sq ft

We can also look at new home construction for clues as to what the home buying public wants. In fact, the estimated average size of new homes has declined as such:

2008 2,520 sq ft

2009 2,480 sq ft

2010 2,377 sq ft

2015 2,152 sq ft

Interesting real estate fact:

Just how much has our preference for bigger homes grown over the generations?

In 1950 there was an average of 290 sq ft per person in the American household.

These days each person has about 924 sq ft in an American household!

It’s not just married couples buying homes!

9% of all single males buy a home, while an impressive 16% of single females buy a home!

These days, 13% of homes are purchased by multigenerational households.

Why are multiple generations in the same family buying a home together? Here are the top reported reasons:

24% Cost savings

23% Adult children moving back in

18% Caretaking for aging parents

10% Spending more time with aging parents

Where are home buyers searching for homes?

The top six sources for home searches are now:

1.     Online websites

2.     Real estate agent

3.     Mobile website or app

4.     Mobile search engine

5.     Yard sign

6.     Open house

By the way, the typical home search takes 10 weeks!

Tech is playing a more important role than ever

76% of buyers visit a home after first finding it through an internet search!

43% of buyers looked for properties online as the first step in the process.

89% used the internet throughout their home search.

78% visited more than 3 sites prior to taking action on a real estate site.

Where are buyers looking to live?

50% Suburbs or subdivisions

16% City centers or urban areas

11% Rural areas

3% Resorts/recreation areas

First-time homebuyers are trending a little older.

Age of first time homebuyers:

68% 34 and younger

29% 35-49

14% 50-59

7% 60-68

3% 69-89

Millenials are holding off on buying far more than their cohorts in previous generations.

Reportedly, saving a down payment is the biggest obstacle to buying for most people. It seems like high debt load is the main reason people can’t save the money to buy a home, including:

50% Too much credit card debt

46% Too much student loan debt

38% High car loans

When they do buy, the 5 most important factors that influence their buying decisions include:

1.     Quality of neighborhood

2.     Easy commute to their job

3.     Overall affordability

4.     Close to family and friends

5.     Quality of school system

How do home buyers differ by generation?

Gen Y

32% of all buyers

Average Age: 29

Household Income: $76,900

Size of Home: 1,720 sq ft

Median Price: $189,000

Gen X

27% of all buyers

Average Age: 41

Household Income: $104,600

Size of Home: 2,100 sq ft

Median Price: $250,000

Younger Boomers

16% of all buyers

Average Age: 54

Household Income: $96,900

Size of Home: 1,890 sq ft

Median Price: $216,000

Older Boomers

15% of all buyers

Average Age: 64

Household Income: $76,400

Size of Home: 1,800 sq ft

Median Price: $215,000

Silent Generation

10% of all buyers

Average Age: 73

Household Income: $63,600

Size of Home: 1,800 sq ft

Median Price: $190,100

What are they buying homes for?

60% of home sales are for the buyer’s primary residence

21% of home sales are for vacation or second homes

19% of home sales are for investment or rental properties

It’s all about the amenities

According to surveys, the top 10 amenities homebuyers are looking for include (in no particular order):

1. Walk-in close in the master bedroom
2. Low-E windows
3.  Linen closet
4. Separate shower and tub in master bathroom
5. Programmable thermostat
6. Great room
7. Energy-efficient appliances and lighting
8. 9-foot plus ceilings on the first floor
9. Separate laundry room
10. Insulated front door

Other polls of single buyers report that important amenities differ by sex:

Single female buyers prefer:

New kitchen appliances

En-suite master bath

Single level home

Single male buyers prefer:

Stainless steel and granite

Cathedral ceilings

New homes

Walk-in closets

Energy efficiency and working towards Green Homes is key

 These environmentally friendly features are critical to home buyers:

Heating and cooling costs

35% very important, 49% somewhat important

Energy efficient appliances

22% very important, 45% somewhat important

Energy efficient lighting

22% very important, 45% somewhat important

Landscaping for energy conservation

10% very important, 37% somewhat important

Environmentally friendly community features

10% very important, 34% somewhat important

Solar panels installed on homes

2% very important, 9% somewhat important

Green homes made up 17% of overall residential construction in 2011, but 38% of all new homes in 2016!

***

Look for part 2 of this blog where we reveal far more interesting statistics, trends and facts about today’s homebuyer!

Shattering the millenial home buying myth.

Why are millenials not buying homes? The simple fact is that for some reason America’s millenial generation (or ‘Gen Y’), defined as 18-29 years old, are not buying homes anywhere near the rate of their predecessors or older generations. With roughly 66 million millenials encompassing 24 million households in the U.S., post-college and early working adults in their 20s, this group forms a huge portion of our population that are normally buying their first homes or moving to the suburbs to start families in droves.

There are several root causes that explain their choice to rent en masse, but there are also several narratives or perceptions that have come to define millenial home buying behaviors that are just not true.

In this blog, we’ll define the three main reasons that are floated for why millenials aren’t buying homes, and explore if each of them are true or not based on statistics and facts.

But first, a primer on the millenial rent-over-buy preference:

Facts about millenial home buying:

• The number of first-time homeowners has dropped precipitously since the mortgage meltdown and Great Recession. These days, first-time buyers constitute about 32% of all buyers, the lowest percentage since 1987, when typically that number is 40%.
• But it’s not jut millenials who have opted to rent in record numbers, as homeownership rates in the U.S. have fallen to around 63.7% from a 2007 peak of 69%, the lowest rate since the 1960s.
• From 2006 to 2013, the number of millenials living with their parents increased by 15%. That may not seem like a big number, but it adds up to almost 10 million people.
• First-time homebuyers have kept the same median age for the past 40 years. In 2015, the median first-time homebuyer was 31 years old, compared to 30.6 in the early 1970s.
• There is still hope since about two-thirds of all millenials haven’t reached that median 30.6 age, and about 22% of all millenials are still under 25.
• Millenials are now renting a median of six years before buying their first home.
• By 2025, millenials will form 20 million new households in the U.S.

Three popular narratives why millenials aren’t buying homes: 

1. They don’t want to buy.

2. They can’t qualify for a loan or can’t afford to buy.

3. Record student loan debt is preventing them from buying.

Reason #1 They don’t want to buy.

The narrative that millenials don’t want to buy a home is false. In fact, research shows that the majority of millenials prefer to own their own home over renting. Surveys show that millenials born from 1981 to 1997 look at homeownership as favorably as their parents, grandparents, and previous generations.

A 2014 survey conducted by Fannie Mae revealed that most millennials reported that owning a home was more sensible than renting for both financial and lifestyle reasons — including control of living space, flexibility in future decisions, privacy and security. 49% of respondents who were young renters also stated that their next move would likely be to own their own home.

Millenials may be more pessimistic about our economy and their finances compared to other generations (and for good reason, having witnessed the Great Recession and record foreclosures and bankruptcies), but Fannie Mae found that the majority of millenials surveyed still have a positive outlook about home buying. In fact, more than two-thirds of all millennial renters said that it was a good time to buy.

Renting is looking less and less attractive to millenials as time goes on, too. Considering that rents are rising at a shocking rate in many areas of the country, the portion of people who pay more than 30% and even 50% of their income towards housing is higher than ever, home ownership is less expensive than renting in many cases – a fact not lost on smart young people who have to write a check for their housing every month.

Reason #2 They can’t qualify for a loan or can’t afford to buy.

In that same Fannie Mae survey, millennial renters were asked their primary reason why they weren’t buying a home. 57% of respondents said that they weren’t buying for financial reasons.

Their answers included:

1.         Insufficient credit score or history

2.         Affording the down payment or closing costs

3.         Insufficient income for monthly payments

4.         Too much existing debt

While there are additional strains, stresses, and circumstances on the typical millennial budget, their financial situation may not be as dire as they believe. In fact, credit score standards have loosened again since the ultra-tight mortgage market during the Great Recession, and banks are offering common sense loans with options for most credit scores in the 620 and up range. A large portion of young people don’t even know what their credit score is, and it appears that they over estimate what score they’d need to buy.

Additionally, many millenials stated that coming up with a down payment and closing costs was preventing them from buying. But when asked exactly how much money they’d need to become homeowners, 42% of those ages 18-34 said they didn’t know how much money it took to buy, and 73% didn’t know about lower down-payment options that range from 3% to 5% of the home’s purchase price, like with FHA loans. In fact, RealtyTrac estimates that about 30% of all homebuyers put down 3% or less on the cost of the home.

Is it conceivable that something as simple as a misconception that they’d need a 20% down payment is holding a large number of millenials back from buying?

Reason #3 Record student loan debt is preventing them from buying.

Probably the most-cited factor for low millennial homeownership is their record level of student loan debt. There’s no denying that student loans debt burdens are higher than ever before, jumping by 56% in the last decade to nearly 1.2 trillion dollars, with the average college graduate with student loans carrying nearly $28,950.

But is that debt really disqualifying them from owning a home? Probably not, if we mind the data.

Millenials definitely have debt and monthly payments to worry about, as a recent Survey of Consumer Finances revealed that 42% of millennial households have student debt, and an additional 35% have auto loans. Their median student loan debts averaged $17,200 and their auto loans, $11,000. But the same Fannie Mae survey found that 53% of millenial renters carried debt that added up to less than $10,000, and only 10% had debts over $50,000.

But remember that student loan debts correlate to college graduates, and according to credible research, higher education rates have a positive - not a negative - impact on homeownership rates. In fact, a Panel Study of Income Dynamics revealed that homeownership levels went up for each successive level of education, even if student debt rose accordingly.

The study found that when a married household with a bachelor’s degree had $30,000 or more in student loan debt, homeownership rates dropped only 2.1%. Those with a master’s degree and $50,000 or more in student loans saw just a 5% dip in homeownership. Likewise, TransUnion found that those with student loan debt owned homes only 3% less than those without debt. This strong homeownership showing is definitely due to education levels, as these studies found that only when a household had $50,000 debt but just an associate’s degree did home ownership rates fall by a significant 16%.

Additionally, it’s estimated that only 8% of households that are repaying student loans had monthly payments that ate up more than 14% of their monthly income. According to New America, a nonpartisan policy institute, the median debt burden from student loans for millenials was only 11%.

According to the Bureau of Labor Statistics, Americans ages 25-34 earn a median monthly wage of $2,940. Black Knight Financial estimates the average monthly principal and interest mortgage payment at $945 per month based on the median home price, which would equate to a 32% debt-to-income ratio. Since the acceptable debt-to-income range for mortgage lending 28% to %36, based on these numbers, a significant number of millenials living in most places in the U.S. outside of the most expensive markets can afford to buy a house.

A Snapshot of the U.S. Housing Market, 2016.

We often keep you abreast on home prices and real estate trends in our local market, but we thought it would be good to present a snapshot of housing data from the entire United States. So we crunched the numbers from multiple credible sources on ten different housing factors, like home ownership, home buying & selling, jobs in housing, home building, equity & distressed homes, and more.

1. Home Ownership

In 2016, the percentage of U.S. adults that owned their home was 62.9%.

That’s a 50-year low, as we haven’t seen a home ownership rate below 62.9% since 1965.

Our diminished home ownership rates aren’t a function of the recession, as only three years ago in 2013, 65.2 % of families owned their primary residence.

2. Home Selling

The average person selling their home is 54 years old, has a median household income of $104,100, and has lived in their current house for 9 years.

89% of home sellers use a real estate agent to assist them in the sale.

To put that in context, in 2001 only 69% of home buyers used a real estate agent.

Currently, sellers are closing on their home transactions at 98% of their original list price.

Although 43% of home sellers report reducing their listing price at least once.

The average home is on market for 30 days or less before entering escrow.

72% of home sellers would “definitely” use their real estate agent again.

3. Home Buying

First-time buyers make up about one-third (32%) of all current home purchases.

The median first-time buyer is now 31 years old, compared to a median age of 54 for repeat buyers.

The median first-time buyer has a household income of $69,400, compared to a median household income of $98,700 for repeat buyers.

The average home purchased these days is 1,900 square feet in size, contains three bedrooms and two bathrooms, and was built in 1991.

           

Buyers who used a mortgage loan typically financed 90% of their home price.

78% of home byers say that neighborhood is more important than the size of a home when buying, and 57% would sacrifice yard size if it meant they’d have a shorter commute to work.

Home buyers were willing to pay a higher dollar value for waterfront property than anything else.

The home characteristic that is rated as the highest value

Within their first three months of owning their home, 53% of home buyers do some sort of home improvement project, with a typically cost of $4,550.

4. Housing Units

There are approximately 134.7 million housing units in the United States.

About 115 million of those are occupied.

Almost 100 million U.S. homes have air conditioning (central or window unit), compared to only 68% that had AC in 1993.

5. Jobs in Housing

As of May 2016, 2.6 million trade contractors made a living in residential building.

But employment among residential home builders and construction contractors is still 25% below the peak in 2006.

Every time a single-family home is built in the U.S., it creates an average of 2.97 jobs, measured by enough work to keep one worker employed for a year.

Housing is one of the largest sectors of employment for Americans, with an estimated 1.7 million people receiving a paycheck for real estate, leasing, or rental housing work.

6. Home Sales

5,250,000 existing homes sold in 2015.

Last year, 510,000 newly constructed homes were sold.

As of June of 2016, we’re on track for 5,570,000 existing home sales this year.

The U.S. median sale price for existing homes is now $239,700.

That number is higher than the 2005/2006 peak of housing prices, but well below the sale price during that period if we adjust for inflation.

7. Home Building

In the 30 years from 1970 to 2000, housing starts on single-family homes averaged almost 1.1 million per year.

As of May of this year, the average is only 764,000 housing starts.

U.S. private sector construction spending has totaled $18.8 billion in the last twelve months.

Ranked by revenue, the Pulte Group is the largest homebuilder in the U.S., with $416,819 million in homes built to date.

The average price of a new home for sale is now $292,200.

8. Equity and Distressed Sales

As of the end of Q1 of 2016, 6,703,857 million homeowners were still underwater in their homes.

However, that’s much lower than the astounding 17 million homeowners that were underwater during the worst of the housing crisis and recession in 2009.

As of June 2016, there were 912,872 homes in some stage of foreclosure (default, auction or bank owned).

That’s down 6% from May 2016 and 19% less than June of 2015.

The average foreclosed home now sells for $121,824.

With rising home values padding equity, it’s expected that by the end of 2016 the number of underwater homeowners in the U.S. will be down to 5 million.

9. Home Dimensions

Builders are now constructing larger homes than in past decades. From 1999 to 2015, the number of new, the number of new homes 4,000 square feet or more increased by 22%.

During that same period, single-family homes under 1,400 square feet fell by 75%.

In 1999, only 17% of homes were larger than 3,000 square feet or more, while 31% of homes sold in 2015 were 3,000 square feet or larger.

In 2015, homes smaller than 2,400 square feet made up 21% of the new construction market, while 37% of new homes had less than 2,400 square feet in 1999.

10. Renting

About 35% of the U.S. population lives in a rental property as opposed to owning their home, which adds up to more than 110 million people, or 43 million households.

35% of renters live in single-family homes, compared to 18% that live in 2-4 unit properties, 42% that live in properties with 5 or more units, and 5% of all renters living in mobile housing.

Gauging by their 52% rent-to-income ratio, rents in New York City are the most expensive in the U.S.

The median asking price for renting an apartment in the U.S. is $1,381 per month.