Mommy, Where Do Buyers Come From?

By Cassandra Majors, Independence Title

Well, honey, you see…when two people love each other very, very much, sometimes the Home-Buying Stork brings them their very own bundle of joy…along with a huge chunk out of their savings, a Russian novel’s worth of legal disclosures, and 30 years of debt.

But how does the stork find them, Mommy?

Good question. Where are the buyers coming from these days? Or to ask the question more precisely: for home buyers in recent years, where were they BEFORE they bought their current homes? Renting an apartment? Leasing a house? Living with their parents? The Planet Krypton?

Luckily, the U.S. Census Bureau keeps track of this sort of thing for us, and not just every ten years. The American Housing Survey is conducted every two years and reports on a wide variety of housing and household characteristics, including “reasons for moving.” Dr. Paul Emrath, Vice President for Survey and Housing Policy Research for the National Association of Home Builders, has written an illuminating summary of the latest data from 2015 that has recently been made available to the public.

Highlights from the article:

• Over half of recent home buyers were former renters (52%), 20% were former owners, 19% are new households (moving from a home that someone else owned or rented), and 9% are unknown.
• For buyers of newer (built 2010+) homes however, 51% were former homeowners and tended to have the highest incomes out of the four groups (buyers of newer homes, buyers of older homes, renters of newer homes, renters of older homes).
• More than three out of every five recent movers stayed within a 50-mile radius of their former home.
• Buyers of newer homes are much more likely to say their new home is better than their previous home as compared to buyers of older homes (70% vs. 60%).

Click here to read the full article and fantastic graphs that show the different segments compared to one another. I also encourage you to take the time to learn to play with the Census Bureau’s many reports and datasets to find out almost anything you’d ever want to know about your area.

What does this all mean for our industry? If you’re a real estate agent, you’re still more likely to find buyers from the pool of current renters, but if you’re a builder, you may be equally as likely to find buyers from current homeowners as from current renters. Even for agents selling older homes, almost 40% of those buyers are likely to be current homeowners. Buyers trading up or making lateral housing moves are a larger share of the total market than they used to be. This might very well be a symptom of declining homeownership rates in the U.S., as 2016 saw the lowest national homeownership rate in 50 years (62.9%). If more renters must continue renting because they can’t afford a down payment or other costs of homeownership, a larger share of buyers will be current owners trading up. Thankfully, this trend seems to have bottomed out and now homeownership rates are inching back up over the last year (now at 63.7% as of July 2017).

• 46% of buyers will be increasing their housing costs by moving, and 24% will keep their costs about the same as before.
• Their primary reason for moving is likely to be that 1) they want a larger or better quality home (16% of those surveyed), 2) they want to form their own new household (15%), and 3) They want to live in a more desirable neighborhood (15%). Coming in fourth place, 10% of responders said they moved to be closer to family.
• Only one in five will likely be moving from more than 50 miles away from where they are now. The higher the income of the buyer, the more likely they are to move outside that 50-mile range.
• 5% will likely be immigrants or foreign investors
• Most will be moving from a house (53%), compared to 37% who will move from an apartment.
• Their ages are likely to fall in the 30-44 year range.

Of course, these are national statistics from one large survey, so we have to be careful about drawing too many sweeping conclusions. Still, both builders and agents can glean some general good tips on finding buyers:

• Target potential buyers living in houses, not just apartments—your future buyer is more likely to live in a house already.
• Don’t just focus on current renters or you risk neglecting a large pool of current homeowners looking to trade up in quality or location.
• Keep in mind that future buyers might not already be living on their own; many buyers are moving from a home owned or rented by another (usually family).
• Look for buyers in your own backyard—most buyers are staying relatively close to where they were before.

And now you know where buyers come from…or at least how the Home-Buying Stork finds them. Now go play outside, Mommy needs a nap.

Cassandra Majors has been a market analyst and data guru in the Austin real estate industry for over a decade.

 

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