When the first Profile of Home Buyers and Sellers was introduced 35 years ago by the National Association of Realtors®, mortgage rates were over four times higher than they are today and first-time buyers made up a much larger share of overall sales (44%). Over time, home-buyer tastes and behaviors have changed, yet many have stayed the same.
In anticipation of the 2016 survey release on October 31, NAR has identified five noteworthy real estate trends since the survey’s inception.
NAR’s Profile of Home Buyers and Sellers dates back to 1981 and is the longest-running series of national housing data evaluating the demographics, preferences, motivations, plans and experiences of recent home buyers and sellers.
Since NAR’s inaugural survey, consumer preferences have evolved and housing costs have gotten more expensive – even in real terms. In 1981, the typical buyer purchased a 1,700-square-foot home costing $70,000 ($201,376 in inflation-adjusted dollars) . In last year’s survey, purchased homes were typically 2,000 square feet and cost $220,000.
Here are the five trends, per the Realtor study:
Participation from first-time buyers is depressed.
Last year’s survey highlighted the ongoing hardships young adults have faced since the Great Recession and its consequences for the housing market.
From reasons such as underemployment, repaying of student debt and being unable to save for a down payment or simply young adults holding off until they marry and have children, first-time buyers in the 2015 survey represented the lowest share (32%) since 1987 (30%). Furthermore, according to the U.S. Census Bureau, the home-ownership rate for 18-35 year-olds is currently at 34.1%, the lowest level in records dating back to 1994.
Sales to first-time buyers peaked in 2010 and 2009 at 50% and 47%, respectively. However, the long-term average is 39% of sales after excluding the skewed data from those two peak years, which were influenced by the popular first-time home buyer tax credit program available at the time.
“Monthly feedback from Realtors® so far this year indicates that sales to first-time buyers have remained subdued in today’s tough market of swiftly rising home prices and meager supply levels at affordable prices,” said Lawrence Yun, NAR chief economist. “A strong majority of current renters under the age of 34 say they want to own a home in the future, but their impending rise will be a gradual one and is not likely to increase substantially in the 2016 survey.”
The internet is not replacing a real estate agent.
It should come as no surprise that NAR didn’t track buyer and seller data on internet usage in 1981. With the World Wide Web not gaining mass popularity until the 1990’s and realtor.com® introduced in 1995, the ability to view listings online and then contact a Realtor® was non-existent.
When NAR first began asking the question 21 years ago, only 2% of buyers used the internet during their home search. By 2005 usage soared to over three-quarters of buyers, and since 2012, 90% or more have gone online during the house hunt.
Despite the internet’s ascending popularity over the past 20 years, buyers and sellers continue to seek a real estate agent to buy or sell a home. In NAR’s 2015 survey, nearly 90% of respondents worked with a real estate agent to buy or sell a home; which pulled for-sale-by-owner transactions down to their lowest share ever (8%). In fact, after peaking at 14% in 2003 and 2004, for-sale-by-owner sales haven’t risen above 9 percent since 2011 (10%).
Buyers have bought slightly bigger, but the pace is currently at a standstill.
The typical single-family home purchased in 1981 was 300-square-feet smaller (1,700 square feet) than in last year’s survey, which at 2,000 square feet remains the survey high, achieved in seven different years. 1985 was the low point in home size (1,650 square feet), and after gradually increasing leading up to the boom years, purchased homes scaled back early in the housing recovery as distressed sales and first-time buyer activity during the tax credit period made up a larger bulk of the sales and reduced the typical home size.
Recently, common claims that more home buyers are either flocking to McMansions in the suburbs or to tiny homes less than 500 square feet are simply untrue. The data shows that since 2011, the median size of homes bought is 2,000 square feet.
“While many millennial renters living in urban areas have sacrificed space for proximity to jobs and entertainment, they’ve so far followed previous generations by fleeing to the suburbs for larger and more affordable homes when they’re ready to buy,” said Yun. “It’ll be interesting to see in coming years if the typical home size shrinks as baby boomers downsize, and if there’s a shift towards more young buyers opting for less space to live closer to city centers. So far it hasn’t happened.”
Down payments have trended down over time, but not in recent years.
At an average monthly mortgage rate of 10.62%, the typical first-time home buyer in 1989 – the earliest NAR collected buyer data on down payments – financed their purchase with a 10% down payment; it was 23% for repeat buyers. As low-down-payment mortgage programs entered the marketplace and credit standards eased too loosely, the typical amount of money put down fell to as low as 2% for first-time buyers both in 2005 and 2006. For repeat buyers, the smallest median down payment was 13% both in 2012 and 2014, which is likely due to reduced equity in the home that was sold.
In recent years, down payment amounts have remained mostly unchanged, coming in at 6% for first-time buyers the last two surveys and either 13% or 14% for repeat buyers in the past four surveys.
The home search is taking longer; tight inventory has slowed the pace in past two years.
With the internet and digital technology creating numerous avenues for sellers to quickly and efficiently market their listings to prospective buyers, one may think the duration of the home search has decreased over time. NAR’s long-running data reveals the opposite: the typical number of weeks has actually increased since the late 1980’s. From 1987 until 2007, a buyer typically searched seven or eight weeks before finding the property they purchased. After rising to 10 weeks in 2008, the median length increased to 12 weeks through 2013 before falling back to 10 weeks the last two years.
“Insufficient supply levels throughout most of the country have forced recent buyers to move quicker to close on a home,” said Yun. “Until new and existing inventory ramps up to meet demand, prospective buyers should anticipate a brisk home search process with not as many homes to choose from as they may like.”