April 13, 2021

RDB-Design

Specialists in home design

FTHBs – Realtor.com Economic Research

Over Forty Percent of First-Time Buyers Spent More than a Year Planning to Buy Homeownership...
  • Over Forty Percent of First-Time Buyers Spent More than a Year Planning to Buy
  • Homeownership Is a Main Motivator for First-Time Home Buyers
  • Insufficient Affordable Inventory and Ability to Save Challenge Potential First-Time Buyers
  • Online Portals Serve as Initial Gateways for Today’s First-Time Buyers
  • Over Half of First-Time Buyers Expect Competition in the Process
  • Financing Challenges Detour a Quarter of First-Time Buyers’ Bids
  • Saving for a Home is a Deliberate and Lengthy Process for First-Time Buyers
  • First-Time Buyers Prefer Seeing Homes in Person Even as Technology Complements the Search

The past year has brought dramatic events and sudden changes in the economy and real estate markets. The COVID pandemic has defined our collective daily activities for over 12 months, and resulted in unprecedented government actions, policy initiatives and market changes. Through the many ups and downs, housing markets have provided a refuge from the crosswinds. For many Americans, homes became not only a shelter, but also a workplace, a school, a gym, a production studio, a virtual meeting venue, taking on many roles and functions. In the process, many people discovered that the homes they had chosen no longer fit their needs, leading to a surge in demand for real estate across the country.

As we enter spring, it is a time of year which signals not only a renewal of nature and warmer weather, but also the start of the home buying and selling season. Traditionally, real estate markets experienced a more defined seasonal trend, with a slow pace during the colder winter months, followed by rising new listings and transactions in the spring, which peaked during the summer months. The past couple of years have seen home buyers remain active in their search even during the winter months, as a dearth of inventory during the warmer months and low interest rates motivated them to keep looking. This was even more evident over the pandemic months, as mortgage rates dropped precipitously to new record lows, encouraging buyers who sought homes in response to health concerns, social distancing, and new remote work reality.

With signs of cautious optimism sprouting throughout the economy as COVID vaccines are rolled out and the number of cases are on a downward trend, real estate markets are in need of new listings. As the largest generational cohort comes into its prime life stages, first-time buyers are playing an important role in this year’s real estate markets. Building on 2020’s rising wave, 4.8 million millennials are turning 30 this year, and will continue to do so for the next three years, a significant positive force for the economy and housing. The main challenge for markets is meeting this upsurge in demand with a commensurate supply.

In the context of changing demographic and economic trends, realtor.com partnered with HarrisX to find out what potential first-time home buyers (FTHBs) faced in today’s real estate markets. The results of our national survey of consumers reveals a diverse group, motivated by the desire to own a home, invest in their financial well-being and meet the needs of their growing families. At the same time, the figures underscore noticeable challenges which are causing many first-time buyers to spend over a year looking for a home.

Over 40 Percent of First-Time Buyers Spent More than a Year Planning to Buy

With favorable demographics, housing markets have seen strong demand even before the COVID pandemic. At the same time, still reeling from the shock of the 2008-09 housing bust and recession, new home construction lagged population growth, leading to an undersupply of inventory, which totaled 3.8 million at the start of 2020. In addition, the pandemic accelerated the contraction in the number of homes for sale, as many sellers decided to stay put.

Not surprisingly, for first-time buyers the result has been a lengthening of the search process. This year, 43 percent of FTHBs indicated that they spent over a year planning to buy a home, with an additional 20 percent taking between 9 – 12 months. Less than a quarter of potential FTHBs spent less than six months planning to buy a home. The challenge of preparing for a home purchase has been impacting all the major demographic cohorts, with 44 percent of millennials, and 53 percent of Gen X and older buyers spending over a year in planning. While the difficulties in finding a home have been clear, the data also underscore the fact that today’s buyers display remarkable resilience in the face of challenges.

Homeownership Is a Main Motivator for First-Time Home Buyers

When we asked FTHBs what were some of the principal reasons for wanting to buy a home, several stood out. First among them was the desire to be a homeowner. This choice was ranked at the top across all generational cohorts, underscoring that owning a home has a significant place for Americans of all ages. The results also lay to rest over a decade of much-publicized concerns about the millennial generation eschewing many of the prior generations’ preferences in regards to owning a home. As millennials have matured and moved into the stage of life where forming families and having children become important, they have embraced similar choices as the Gen X and Baby Boomer cohorts.

The other important motivators for FTHBs are the desire to invest in a space that they can improve, as well as the need for a larger home. Just as importantly, FTHBs recognize the benefit of building equity through their real estate purchase. While these drivers were clear for millennials and older potential buyers, they were also prevalent for Gen Z respondents.

 

Insufficient Affordable Inventory and Ability to Save Challenge Potential First-Time Buyers

While the goal of homeownership, combined with favorable financing, motivated FTHBs to search for homes, the market realities are presenting several challenges. Chief among them is first-timers ability to save for a down payment. While the economy expansion which followed the 2008-09 Great Recession saw growth in employment and real estate values, income growth for most Americans lagged home price appreciation. In addition, many younger buyers like millennials have wrestled with record amounts of student debt, which hampered their efforts to save money. And this past year’s pandemic has only exacerbated those challenges.

The main reason cited for not being able to buy a home was insufficient down payment funds. Reflecting tight inventory, survey respondents ranked the inability to find a home in their budget as a second challenge, followed not far behind by the inability to find a home with all the desired features. Down payment concerns were the highest for the millennial generation. For Gen Z respondents, finding a home with the right features was a higher comparative challenge.

 

When it comes to the condition of desired homes, FTHBs are willing to tackle home improvement projects, but many understand the obstacles. Even with popular television shows highlighting the success of renovation projects, only 11 percent of today’s first-time buyers are willing to bid on a fixer-upper home which requires a lot of improvement. Forty-six percent of FTHBs would be fine with some repairs, while 43 percent prefer a move-in ready home.

Online Portals Serve as Initial Gateways for Today’s First-Time Buyers

For today’s FTHBs, searching for a home starts online. Close to a third of survey respondents indicated that looking at listing online was their first step on the home buying journey. The second highest ranked step was saving money and changing spending habits (24%). The third step in order of importance was figuring out a budget. Across generations, millennials mirrored Gen Xers and earlier by starting their journey with online searches. Gen Z buyers, on the other hand, saw the need to save money as their first step. Interestingly, Gen X and earlier cohorts ranked budgeting comparatively higher than younger groups. Meanwhile, gen Z buyers relied on their friend and family networks more heavily as part of the home buying process.

For many FTHBs, the search process has been intensive, especially over this past year. While most first-timers search listings a few times per week, close to one-in-five look at listings multiple times per day. The trends were fairly consistent across demographic groups.

Over Half of First-Time Buyers Expect Competition in the Process

First-time buyers are fully informed about existing real estate market trends and challenges. Over half of survey respondents expected to face competition when trying to buy a home, acknowledging that in today’s tight markets, contingency waivers and price escalation clauses are the norm. Close to one-in-five respondents indicated that they expected a lot of competition in the market from other buyers. Millennials had the highest share of respondents who indicated that a competitive landscape was part of their experience.

Financing Challenges Detour a Quarter of First-Time Buyers’ Bids

Mirroring the competitive real estate environment, 49 percent of first-time buyers reported finding a home they loved but being unsuccessful in purchasing it. For 26 percent of them, financing proved to be the insurmountable challenge. Another 13 percent were outbid on their favored home, while about one-in-ten failed to buy a beloved home due to an adverse home inspection. Gen Z buyers were comparatively more likely to find a home they loved and failing to secure the needed financing.

Saving for a Home is a Deliberate and Lengthy Process for First-Time Buyers

When it comes to saving for a home, many first-time buyers take a multi-pronged approach. A large share set aside a certain amount each month, while others cut out discretionary expenses, such as eating at restaurants and gym memberships. Many would-be buyers save their bonuses or other lump sum money, and some also take on second jobs. The saving approaches were fairly similar across demographic cohorts.

Real estate markets have experienced a decade in which home prices outpaced income growth for many Americans. The reality is reflected in first-time buyers’ ability to save for their down payments. Only 12 percent indicated that they were able to save enough money for less than a year for their first home. Over half spent more than a year setting aside down payment money, with nine percent taking between 5 – 10 years. Notably, two percent spent over a decade working toward gathering needed funds.

First-Time Buyers Prefer Seeing Homes in Person Even as Technology Complements the Search

While the COVID pandemic accelerated the shift toward technological solutions for real estate transactions, close to half of FTHBs remained unwilling to buy a home without seeing it in person first. Millennials showed the highest comparative share of respondents for whom physically seeing a home prior to purchase is important.

Just as importantly, while a majority of FTHBs prefer to see the home in person, 46 percent rely on the presence of their agent when assessing potential homes. Millennials showed the highest comparative share of in-person visits with an agent as a way to see homes. Online photos and video tours accounted for about 20 percent of respondents, with Gen Z respondents showing a slightly higher preference for technology solutions.

When it comes to technology, virtual tours have gained in popularity, with almost 30 percent of FTHBs indicating that they would be helpful when deciding on a home. Another 22 percent pointed that accurate and detailed home information—size, layout, amenities—would be most helpful in assessing a potential home.

Location, Quiet Neighborhoods and Large Backyards Top List of Desired Home Features

The past twelve months have resulted in deliberate changes in desired home features for today’s FTHBs. While urban downtown were the go-to places over the past decades, today’s buyers are seeking larger homes, quieter neighborhoods, large backyards and garages. In a world in which social distancing and remote work played critical roles, some of these features are not surprising. Buyers are also looking for a good community and neighbors, good public school districts, along with desirable town amenities, like a city center, restaurants, art venues and museums. It is obvious that most buyers are already looking at a post-pandemic environment, where social interaction will resume. At the same time, the shift in preferences are also pointing at a maturing first-time buyer, for whom higher quality of life is rising in importance along with family formation.

These preferences are fairly consistent across demographic cohorts, with some nuances. For millennials, location ranks comparatively higher, while a quiet home is more important for the Gen X and older group. Millennials also ranked large backyards higher, while Gen Z respondents provided comparatively higher ranking for garages.

Conclusion – Affordability is Key to 2021 Real Estate Markets

As we head into the spring and summer seasons, real estate markets are still looking for balance in the wake of 2020’s pandemic. We have a tremendous demographic cohort coming into its prime years, looking for homes. At the same time, we are still grappling with the effects of the last housing bust and a decade of insufficient construction. Today’s FTHBs are fully cognizant of the inherent challenges they face, yet at the same time, they are determined to pursue their goals of buying homes and building communities, while securing financial foundations for their families.

With affordability playing a central role for FTHBs, we are seeing rising demand in smaller and midsize communities within a one-to-two hour commute of major employment centers. In the early part of 2021, cities on the West Coast like Vallejo, Yuba City, Stockton, Santa Cruz and Sacramento in California made the list of realtor.com’s Hottest Housing Markets, as buyers from San Francisco and Los Angeles sought more space and lower prices. At the same time, on the East Coast, Burlington, NC, Concord and Manchester, NH highlighted strong demand from buyers from nearby larger metro areas like Raleigh-Durham in North Carolina, or Boston in Massachusetts. Meanwhile, the Midwest and South play an important role for buyers seeking affordability and quality of life, in places like Springfield, OH, Janesville-Beloit, WI, Lafayette, IN, and Austin, TX.

 

Methodology: Realtor.com® commissioned HarrisX to conduct a national survey of consumers. The total sample size was 830 adults. The survey was carried out online. The figures are representative of all U.S. adults (aged 18+) who were identified as likely first-time buyers. The sampling margin of error of the survey was +/- 3.6 percentage points. Results were weighted for age, gender, region, race/ethnicity and income where necessary to align them with their actual proportions in the population.