Survey finds serious generational differences
In studying generational differences of recent home buyers and sellers, the National Association of Realtors (NAR) found that millennials are moving to the suburbs, younger generations are more likely to use a real estate agent, a growing number of millennials and younger boomer buyers have kids living at home, and student debt is common in Gen X and boomer households. Whew, that’s a mouthful.
NAR points out that while much focus has centered around millennials’ homeownership challenges, Gen X is often lost in the discussion, a generation that fueled the greatest share of purchases in the past year.
Gen X has the most student loan debt
NAR Chief Economist, Dr. Lawrence Yun notes that this generation started families, entered the middle part of their careers, and bought homes, only to be rattled by job losses, slipping home values, and overall economic uncertainty during and after the Great Recession.
In the past year, Gen X households experienced equity challenges, and were the most likely generation to have previously sold a distressed property and the most likely to want to sell earlier but were underwater and couldn’t.
The survey found that Gen X had the most student loan debt this year ($30,000) and delayed buying a home longer than millennials because of equity and debt challenges.
“Gen X sellers’ median tenure in their previous home was 10 years, which puts many of them selling a property they bought right around the time home values were on the precipice of declining,” said Dr. Yun. “Fortunately, the much stronger job market and 41 percent cumulative rise in home prices since 2011 have helped a growing number build enough equity to finally sell and trade up to a larger home. More Gen X sellers are expected this year and are definitely needed to ease the inventory shortages in much of the country.”
An uptick in purchases from Gen X
Despite the equity and student loan debt challenges, the uptick in purchases from Gen X buyers (28 percent) was the highest level in three years.
Millennials were the largest group of recent home buyers (34 percent) followed closely by boomers (30 percent) and the silent generation accounted for 8.0 percent of home purchases.
Younger boomers focused on adult children
This year, NAR points out a rising trend – younger boomers increasingly considering their adult children as they buy. Because rents are soaring nationally, younger boomers were the most likely to purchase a multi-generational home (20 percent, up from 16 percent in 2016), citing adult children moving back in or never having left as the top reason.
Meanwhile, household formation rates remain delayed, dragging down homeownership rates and shifting how older generations buy homes in preparation.
“The job market is very healthy for young adults with a college education, but repaying student debt and dealing with ever-increasing rents on an entry-level salary are forcing many to either shack-up with several roommates or move back home,” said Dr. Yun.
Moving on to millennials
The NAR survey indicates that millennials have more kids in tow (49 percent have at least one child, up from 43 percent just two years ago), demanding more space at an affordable price, pushing them to the suburbs. Only 15 percent of millennial buyers bought in an urban area, down from 21 percent two short years ago.
“Millennial buyers, at 85 percent, were the most likely generation to view their home purchase as a good financial investment,” added Yun. “These strong feelings bode well for even greater demand in the future as more millennials settle down and begin raising families. A significant boost in new and existing inventory will go a long way to ensuring the opportunity is there for more of them to reach the market.”
Demand for real estate professionalsRegardless of age, buyers and sellers continue to see real estate agents as an integral part of a real estate transaction.Click To Tweet
In this year’s survey, nearly 90 percent of respondents said they worked with a real estate agent to buy or sell a home. This kept for-sale-by-owner transactions down at their lowest share ever (8 percent).
How buyers are competing in a tight home buyers market
(HOMEOWNERSHIP) It’s a seller’s market with housing supply at an all-time low. Here’s what buyers are doing to increase their chances of buying a home.
Home inventory is at an all-time low in most places around the country. Most people believe that the COVID-19 pandemic is responsible. Families are staying put in their homes, rather than looking for a new place to live. The National Association of Realtors reports that in March there were almost 5 offers for every home sold in the United States. Utah Realtors reported an average of 7 offers per home. Sellers and realtors are winning in this highly competitive market, making us wonder how buyers are faring. The latest REALTORS® Confidence Index Survey gives us some indication of what buyers are doing to boost their real estate transaction success.
Cash is king
According to the NAR, cash sales are up by an average of 21%. Buyers are hoping that cash makes their offer more attractive. Closing without a loan has a lot of benefits to the seller. The sale is more likely to close, as it isn’t dependent on a loan. Plus, there are less costs involved in closing. Since 2013, cash sales haven’t been trending upward, so this is an interesting turn for sellers. Buyers who make cash offers reduce the risk of getting rejected by the seller.
Buyers making larger down payments
Sellers also benefit when buyers make a 20% down payment or more. A higher down payment increases the chance of getting a loan. According to the NAR, almost 50% of buyers are making a down payment of at least 20%, which is up from 40% of buyers in 2011. Buyers avoid mortgage insurance premiums, which makes it a win-win for everyone.
Buyers aren’t even offering or negotiating
The third way buyers are coping in this market is to back off and not even make an offer when they know a home already has competition. Why get your hopes up, only to have them dashed when you can’t negotiate?
Will supply return?
The good news is that the housing supply outlook is on the increase. As vaccinations roll out and people feel safer to show their home, more homes should come on the market. Housing permits are up, too. This should help even out the market and give buyers a better chance to find a home.
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Home sales dip 10%, inventory levels continue to plague the market
(HOMEOWNERSHIP) While demand for home sales has remained high, a lack of inventory means that numbers have continued to dip, according to the NAR.
In February, all regions experienced a decrease in pending home sales (contracts penned), according to the National Association of Realtors (NAR). Compared to January, sales fell 10.6%, and fell 0.5% from February 2020.
As with every real estate news story you’ve read here in recent years, NAR continues to point to tight inventory levels as the continuing plague on the market.
“The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory,” said NAR’s Chief Economist, Dr. Lawrence Yun.
He observes that overall demand does not appear to be impacted by mortgage rates trending upwards, expected to remain low at no more than 3.5% this calendar year.
It is interesting to note, however, that more expensive homes had increased sales activity because of “reasonable supply,” per Dr. Yun, adding that homes above the $250,000 mark have driven home sales in recent months.
That said, Dr. Yun indicates that even homes priced above $500,000 to less than $1 million are subject to the tight inventory challenges.
“Potential buyers may have to enlarge their geographic search areas, given the current tight market,” Dr. Yun noted. “If there were a larger pool of inventory to select from – ideally a five- or a six-month supply – then more buyers would be able to purchase properties at an affordable price.”
In past months, NAR has repeatedly pointed to the same solution to the inventory challenge – new home builders. If supply were increased and housing starts improved, demand would be more readily satiated and fewer people would be priced out of the market.
Economic conditions typically shift under any new President, and with an ongoing pandemic, we are watching for any signs of hope in a dark time. With building material costs continuing to increase, labor conditions in the sector remaining difficult, mortgage rates are rising (albeit slowly), inventory levels are not expected to immediately improve.
Why realtors shouldn’t use the term ‘Starter Home’
(HOMEOWNERSHIP) You see the term in the MLS for fixer uppers, you hear it when Realtors are working with first time buyers. But the term “starter home” shouldn’t be in anyone’s vocabulary. Here’s why.
Collins English Dictionary defines a starter home as a “small, new house which is cheap enough for people who are buying their first home to afford.” You won’t find the phrase too often outside of the real estate industry.
There isn’t much about the etymology of the phrase, but most likely, it’s a marketing ploy to get people to buy into the idea of purchasing another home in a few years.
Grind your gears
Mark Greutman, husband to Lauren Greutman, believes that the term “starter home” should bother people. The phrase implies that you will upgrade later.
Your starter home isn’t good enough for the rest of your life. And not to get into how well Americans have it, what about people who will never be able to afford anything more? Is it an insult to them?
Do you really need two living rooms?
Older generations bought one home and lived in it until they could no longer be independent. In today’s world, we buy a starter home, then upgrade to have more space, to live farther away from our neighbors, to have rooms that are only used once or twice a year, and to make sure you have a 2 or 3 car garage to hold your vehicles and more stuff, some of which isn’t taken out very often.
But consider this: You could pay off your starter home in 15 to 20 years, if you budget right.
You could be out from under a mortgage and have money to travel, send the kids to college, or even retire early. When you think about what led to the financial crisis in 2008, isn’t it better to have a smaller house where you can make the payments than worry about losing your house?
Be content where you are
Realtors are motivated to make sure that they have customers. If people buy one home with the intent to stay, will the market dry up? Probably not, because people move and a new generation will be ready to purchase homes for their own family.
Let’s think about that phrase, “starter home.” It fuels consumerism and discontentment. Don’t call cheaper houses starter homes, but just a home.
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