First-Timers Shocked / Market Update January 2021

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First Time Homebuyers Shocked by How Much Home They Can Afford

February 23, 2021 – Low mortgage rates, financial assistance from parents, and personal savings are helping first-time buyers stretch their housing budgets more than they thought they could, according to a survey from realtor.com® of 1,000 prospective and recent first-time home buyers. More than two-thirds of survey respondents say they are surprised at what they can afford; 47% say their budget is larger than they thought it would be.

“The dramatic decline of mortgage rates in 2020 was a pleasant surprise for many buyers,” says George Ratiu, senior economist at realtor.com®. “For first-time buyers, the drop in the 30-year mortgage rate from 3.65% in March 2020 to a record low of 2.65% in January has provided unexpected leverage. Lower rates allowed many buyers to stretch and buy more expensive homes while keeping their monthly budget the same.”

Still, many first-time buyers acknowledge having to compromise on their recent purchase, and nearly half of survey respondents say they have been outbid on homes they wanted to purchase. Twenty-one percent of respondents had to expand their housing search to less expensive neighborhoods, 20% had to increase their housing budget, and 18% had to eliminate some items on their wish lists, such as a garage, large backyard, finished basement, or pool, the survey shows.

First-time buyers also are saving for a home faster than they expected. Half of recent first-time buyers surveyed say they were able to save for a home in less than three years by putting aside a portion of their paycheck each month, cutting out discretionary spending, and saving lump-sum payments like tax refunds. Also, many first-time buyers are getting help from their family: 52% of Americans who bought their first home in 2020 say they received down payment assistance from friends or family, most notably their parents.

Buyers Snatch Up New Listings as Quickly as They’re Available

Home sales could easily be 20% higher if more homes were for sale, says Lawrence Yun, chief economist of the National Association of REALTORS®. Existing-home sales—completed transactions for single-family homes, townhomes, condos, and co-ops—rose 0.6% in January compared to December 2020 and are up nearly 24% over a year ago, the National Association of REALTORS® reported Friday. All four major regions of the U.S. recorded double-digit annual gains for home sales in January.

“Home sales continued to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market,” Yun says. Seventy-one percent of homes sold in January were on the market for less than a month, according to NAR’s report.

While most of the economy has felt the toll of the lingering COVID-19 pandemic, the housing sector has remained a bright spot, Yun adds. Sales remain high and home prices have continued to rise, adding equity to home sellers.

“Home sales are continuing to play a part in propping up the economy,” Yun says. “With additional stimulus likely to pass and several vaccines now available, the housing outlook looks solid for this year.” Yun predicts employment to increase, which could spur even more homebuying over the coming months. He predicts existing-home sales to reach at least 6.5 million in 2021.

Here’s a closer look at key indicators from NAR’s existing-home sales report, reflecting January sales data:

Home prices: The median existing-home price for all housing types in January was $303,900—a 14% jump over a year ago.

Inventory: Total housing inventory at the end of January was 1.04 million units, down nearly 26% from a year ago. Unsold inventory sits at a 1.9-month supply at the current sales pace.

Days on the market: Properties typically remained on the market for 21 days in January, down from 43 days a year prior.

First-time buyers: First-time buyers comprised 33% of sales in January, up slightly from 32% a year earlier.

Cash sales: All-cash sales accounted for 19% of transactions in January, down from 21% a year ago. Individual investors or second-home buyers tend to make up the biggest bulk of cash sales. They accounted for 15% of sales in January, down from 17% in January 2020.

Regional Breakdown

Here’s how existing-home sales fared in January across the country, according to NAR’s report:

  • Northeast: Existing-home sales dropped 2.2% in January, but are up 24.3% compared to a year ago. Median price: $361,400—up 15.8% from January 2020
  • Midwest: Existing-home sales rose 1.9% last month, a 22.7% jump from a year earlier. Median price: $227,800—a 14.7% increase from January 2020
  • South: Existing-home sales increased 3.2%, up 25.1% from January 2020. Median price: $263,300—a 14.6% increase compared to a year ago
  • West: Existing-home sales fell 4.4% compared to a month earlier but are still up 21.3% compared to January 2020. Median price: $461,800—up 16.1% from a year earlier

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Seller to Sell Faster, Market Changes

The coronavirus pandemic initiated several shifts in America’s housing market over the past eight months. Changes in the behaviors of home buyers and sellers were especially notable as buyers’ usual tendencies altered, and the urgency to sell accelerated.

This is according to new data from the National Association of Realtors®’ 2020 Profile of Home Buyers and Sellers,1 a yearly report which discusses demographics, preferences and experiences of buyers and sellers across America.

Those who completed their transaction after March were more likely to purchase a multi-generational home. Multigenerational home purchases accounted for 15% of sales after March, compared to 11% for those who closed before April. In light of stay-at-home orders, instituted within the early weeks of the pandemic, 14% of buyers who bought after March said their transaction was delayed because of COVID-19.

“The coronavirus without a doubt led home buyers to reassess their housing situations and even reconsider home sizes and destinations,” said Jessica Lautz, vice president of demographics and behavioral insights at NAR.

“Buyers sought housing with more rooms, more square footage and more yard space, as they may have desired a home office or home gym,” she added. “They also shopped for larger homes because extra space would allow households to better accommodate older adult relatives or young adults that are now living within the residence.”

Among other updated statistics, this year’s report includes two new sections on active home buyers and sellers during the COVID-19 pandemic. Purchases and sales that closed in April 2020 or after are considered transactions that occurred during the pandemic. The survey evaluated buyers’ and sellers’ behaviors prior to the virus taking shape and then assessed consumer and seller patterns in the midst of the outbreak.

Buyers who purchased after March were more likely to relocate to the suburbs and were more likely to pay more for that home – regardless of its location – paying an average of $339,400 compared to $270,000 for those who purchased before April. Findings show those who bought a home  during the pandemic are expected to remain there for 10 years. That is compared to 15 years for those who purchased prior to the COVID-19 outbreak.

Five percent of buyers who purchased after March did so without physically seeing the home in-person, compared to 3% of buyers who purchased before April. Those who went to closing after March were less likely to be denied by a lender – 2% compared to 5% for pre-April buyers. This group also had higher household incomes – $100,800 compared to $94,400 for pre-April buyers.

Lautz notes several additional, significant behavioral changes among home sellers due to the pandemic, including a desire from many to accelerate their transactions.

“So many sellers were eager to get out of their old home and move to something bigger that would better meet their needs during quarantine,” she said.

The NAR report reveals that owners who sold in 2020 were more likely to say that their need to sell was “at least somewhat urgent.” Those who closed in April or later were more likely to sell because their home was too small – 18% compared to 13% of those before April.

Sellers after March were more likely to use incentives to help sell their home, and they sold for 98% of the list price compared to 99% for those before April. However, those homes sold after March ultimately had higher selling prices – $300,000 compared to $270,700 for those that sold before April.

Fifty-six percent of homeowners who sold after March sold in the suburbs, compared to 48% who sold before April.

Other Shifts in Buyer and Seller Behaviors

The average buyer age of 55 was an all-time high, according to the NAR survey. The average first-time buyer was 33 years old. There was a slight rebound in single women buyers – 18% from 17% in 2019. A record-low 33% share of buyers with kids at home under the age of 18 was recorded – a drop from 58% in 1985.

The proportion of first-time buyers dropped to 31%, down from 33% in 2019. This is the lowest share since 1987’s recording of 30%. Twenty-two percent of first-time buyers moved from a family member’s home directly into ownership. This is also a lower share than last year’s.

The NAR study found that 97% of buyers searched for their home online. This is the highest percentage for an online home search and is a jump from last year’s 93%. The time spent looking for a home declined to eight weeks from 10, which is the shortest search since 2007.

“Some buyers purchased their homes before ever physically seeing them in person,” said Lautz. “They researched, viewed photos online and did virtual tours from their computers and phones, and ultimately made an offer through their agent.”

On average, buyers looked at nine homes in person, and an additional five homes via virtual tour listing online only. Fifty-three percent of buyers said finding the right property was the hardest step in the home buying process.

The market changes and so do we. We’re watching the market closely and grow with all changes.

For all of your Real Estate needs, Talk To Tammy 636.931.9100!