Jessica Lautz, NAR’s Deputy Chief Economist and Vice President of Research provided brokers with crucial market stats and trends. This provided them with all of the knowledge they need to stay abreast of real estate changes.
At the January Broker Power Hour hosted by the National Association of REALTORS(r), Jessica Lautz, deputy chief economist and vice president of research for NAR provided economic updates and industry trends that enabled brokers to better run their businesses.
Lautz began by acknowledging the challenges the industry encountered during 2023, yet also mentioned how projections for spring 2024 appear promising.
2023 saw home sales reach their lowest levels since 1995 despite population growth since that point. Lautz pointed to inventory as being responsible.
“In 1995 there were approximately 1.6 million units available on the market; by December 2023 this figure had shrunk to under 900,000.”
Lautz noted a 45% year-over-year price increase. Low interest rates during the early pandemic brought buyers who might otherwise not have entered the market, purchasing primary residences as well as vacation and retirement properties – driving inventory levels down and contributing to price rises.
As 2023 was an otherwise difficult year, industry insiders are aware that 2023 has been difficult. Lautz mentioned how interest rates are beginning to trend down which should signal an upswing in market activity by springtime.
Interest rates on 30-year fixed-rate mortgages dipped almost to 8% in October but have since stabilized at approximately 6.6%.
“This difference in interest rates could save homebuyers with 20% down payments almost $260 monthly in payments.
Lautz noted that the current average has dropped below its historic norm of 7.74% and that practitioners should advise their customers that rates of 2%-3% may never return again in their lives.
Issues With Affordability One of the primary challenges aspiring homeowners are currently faced with is affordability. “The cost of owning a home goes far beyond price and mortgage,” according to Lautz.
According to NAR’s affordability index, home buyers in today’s market typically devote 27% of their income towards paying monthly mortgage payments; historically this was 20%.
Lautz noted that first-time homebuyers are entering the market as older and wealthier individuals; however, those integral to their communities –such as teachers, social workers and firefighters– remain priced out.
Generational Trends
Each generation approaches home buying differently. To gain a complete picture of market trends, it’s essential to understand their individual behaviors in terms of buying homes.
Baby Boomers This demographic group dominates the housing market, and half of them purchase homes using cash. Many Boomers have lived in their current residence for several years while enjoying equity appreciation; others may be thinking ahead to retirement in more affordable areas.
Though older buyers typically downsized when retiring or their children moved out, Lautz says older repeat buyers now have enough equity and cash to maintain their lifestyles with newer builds featuring amenities they desire and are looking for their “forever home,” meaning they plan on living there for 20 years or longer.
Lautz notes that buyers of all ages are increasingly realizing the value and convenience of green and smart home features – even older homebuyers with plenty of disposable income who recognize how such features could make life simpler and make aging in place more feasible.
Gen-X
While Gen X remains fairly consistent in the market, one notable trend has been their tendency to purchase multigenerational properties and take on additional financial burden. Lautz notes this generation is carrying much of it’s own burden financially.
Millennials The median age for first-time buyers today is 35 – which falls in the center of Millennial generation. Historical norms for first-time buyers range between 28-29 years old.
Lautz notes the significance of age when purchasing real estate. A 35-year-old may have very different housing needs compared to someone 28 years old, as well as having missed out on years of equity accumulation due to being late to buying their first home. Today’s first-time buyers face unique needs than in past decades.
Generational Trends
With increasing homebuyer ages comes an erosion of equity and wealth. Furthermore, newcomers tend to trade less often; coupled with children or partners having different needs than previous buyers who tended to purchase smaller homes and condos.
Baby boomer generation represents the highest housing wealth and largest portion of market, thus exerting pressure on inventory and cash sales.
Sticky Trends A “sticky trend” refers to any behavior within the market which seems likely to remain persistent despite fluctuations in economy or otherwise. Lautz identified several such patterns that she has been monitoring closely for some time.
Migration
Boomers and the Silent Generation have shown themselves more willing than ever to relocate long distances in order to be close to family or a grandchild, even moving across several states if necessary.
Sunbelt and mountain states remain extremely popular because many are drawn to them due to their warm temperatures, beautiful views and/or favorable tax regulations.
People are moving farther than ever before; from 1989-2022 people typically relocated 10-15 miles annually; during the pandemic however this figure skyrocketed to 50 miles with one quarter of people relocating over 470 miles! Though now back down to 20 miles it still shows that people are willing to move further than was historically typical.
Buy Sight Unseen
Pandemic activity caused an increase in people buying homes without viewing them first hand, due to isolation orders or general safety concerns; others bought sight unseen simply due to distance considerations.
Though isolation orders have eased and most people are back out and about as before the pandemic hit, buyers may still move further from where they would have normally. Lautz estimates that 9 percent of buyers last year purchased their home sight unseen.
She asserts the significance of this trend lies with how homes are presented to prospective buyers, noting: “we must consider everything practitioners are doing to showcase a home: virtual tours and staging, floor plans and even making sure Facetime is ready.”
Lautz notes there is still hope within the market and association in 2023, noting there are positives for practitioners to take note of.
First and foremost, homeownership remains an invaluable way to build wealth and live the American dream. According to NAR data, homeowners’ average net worth stands at around $400,000 while renters only have an estimated average net worth of $10,000 compared to this homeownership figure.” That makes homeownership even more significant for American savers because we tend to be bad savers themselves – homeownership provides one way of building up one’s savings accounts Lautz says.
Furthermore, nine out of ten homebuyers and sellers desire representation when purchasing or listing their home. Buyers need help negotiating and finding their ideal home; whether first timers or repeat buyers. Today’s market differs vastly from that of 10 years ago; thus they require someone to help guide them. Likewise, sellers rely on agents to develop price points, market their property effectively and negotiate on their behalf; similarly For-Sale-By-Owner sales are currently at a historic low of only 7%!
Broker Power Hour is an NAR benefit designed to equip real estate brokers with information and tools needed to successfully navigate the market and their businesses. For more information or registration for the next Power Hour event, visit broker.realtor.
