WASHINGTON (October 18, 2016) – 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 percent). Over time, homebuyer 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.
“The survey’s unrivaled longevity provides Realtors® and consumers with a depth of research that is unparalleled. When the Profile of Home Buyers and Sellers made its debut 35 years ago, consumers and Realtors® navigated a much different real estate landscape. The internet hadn’t been invented, the average monthly mortgage rate was 15.12 percent1 and one’s description of a ‘smart home’ was probably how many children living in the household made honor roll,” says NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida. “One constant during this time has been Realtors®’ role as the leading advocate for homeownership and private property rights and a trusted expert in helping buyers and sellers close the deal.”
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) 2. In last year’s survey, purchased homes were typically 2,000 square feet and cost $220,000.
To mark the 35th year of NAR’s highly-anticipated survey capturing the pulse of buyers and sellers, here are five notable trends from the past three-and-a-half decades:
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 percent) since 1987 (30 percent). Furthermore, according to the U.S. Census Bureau, the homeownership rate for 18-35 year-olds is currently at 34.1 percent, the lowest level in records dating back to 1994.
Sales to first-time buyers peaked in 2010 and 2009 at 50 percent and 47 percent, respectively. However, the long-term average is 39 percent of sales after excluding the skewed data from those two peak years, which were influenced by the popular first-time homebuyer tax credit program available at the time.
“Monthly feedback from Realtors® so far this year 3 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,” says 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 future4, 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 percent of buyers used the internet during their home search. By 2005 usage soared to over three-quarters of buyers, and since 2012, 90 percent 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 percent 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 percent). In fact, after peaking to 14 percent in 2003 and 2004, for-sale-by-owner sales haven’t risen above 9 percent since 2011 (10 percent).
“Realtors® are the source of online real estate data, and they continue to use their real insights and local market knowledge to help bring buyers and sellers together,” says Salomone. “The preference to use a Realtor® has never been stronger.”
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 homebuyers 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 homes5 when they’re ready to buy,” adds 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 percent6, the typical first-time homebuyer in 1989 – the earliest NAR collected buyer data on down payments – financed their purchase with a 10 percent down payment; it was 23 percent 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 percent for first-time buyers both in 2005 and 2006. For repeat buyers, the smallest median down payment was 13 percent 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 percent for first-time buyers the last two surveys and either 13 percent or 14 percent 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,” says 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.”
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing over 1.1 million members involved in all aspects of the residential and commercial real estate industries.
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1According to NAR’s Housing Affordability Index calculations.
2According to the Consumer Price Index’s historical data from the U.S. Bureau of Labor Statistics.
3According to the Realtors® Confidence Index, sales to first-time buyers in 2016 have averaged 31 percent through July; they were 30 percent in 2015.
4According to NAR’s December 2015 Housing Opportunities and Market Experience (HOME) survey, 94 percent of current renters 34 years of age or younger want to own a home in the future.
5NAR’s 2016 Home Buyer and Seller Generational Trends survey found that the majority of buyers in all generations continue to purchase a single-family home in a suburban area. The share of millennials buying in an urban or central city area decreased to 17 percent (21 percent a year ago) in this year’s survey, and fewer of them (10 percent) purchased a multifamily home compared to a year ago (15 percent).
6According to NAR’s Housing Affordability Index calculations.