SAN DIEGO (November 13, 2009) -- First-time home buyers reached the highest market share on record during the past year, according to the latest consumer survey of home buyers and sellers. The study was released here today at the 2009 Realtors Conference & Expo.
The 2009 National Association of Realtors Profile of Home Buyers and Sellers is the latest in a series of large national NAR surveys evaluating demographics, preferences, marketing and experiences of recent home buyers and sellers. Among national surveys, NAR’s Profile of Home Buyers and Sellers is unprecedented in size and scope.
Paul Bishop, NAR vice president of research, said several factors have been at play. “Tax incentives, record high affordability conditions and a pent-up demand brought a record share of first-time home buyers into the market,” he said. “These buyers are critical to housing and a general economic recovery because the market always heals from the bottom up – they absorb inventory, free existing owners to make a trade and stimulate related goods and services.”
The number of first-time home buyers rose to 47 percent of all home sales from 41 percent of transactions in last year’s study, and was the highest on record dating back to 1981. The previous high was 44 percent in 1991. “It’s interesting to note the last cyclical peak of first-time home buyers was during the last noteworthy economic downturn, with first-time buyers starting the chain reaction that led the nation out of recession,” Bishop said.
The profile shows the median age of first-time buyers was 30 and the median income was $61,600. The typical first-time buyer purchased a home costing $156,000, down from $165,000 in the 2008 study, and plans to stay in that home for 10 years.
Fifty-five percent of entry level buyers reported they financed their purchase with an FHA loan, while another 8 percent used the VA loan program.
First-time buyers who made a downpayment used a variety of sources: 61 percent used savings and 22 percent received a gift from a friend or relative, typically from their parents. Six percent received a loan from a relative or friend, 6 percent tapped into a 401(k) fund, and 6 percent sold stocks or bonds. Ninety-six percent chose a fixed-rate mortgage.
First-time buyers often make financial sacrifices to purchase a home: 39 percent cut spending on luxury items, 38 percent cut back on entertainment and 30 percent cut spending on clothes.
Only 12 percent said financing their first home was more difficult than expected, but 13 percent of successful buyers said they had experienced a purchase agreement that was canceled, terminated or fell through; and 8 percent had been rejected by a lender. “This raises the question of how many potential buyers were unsuccessful because of problems with appraisals or loan qualifications,” Bishop said. “The market would be even stronger without these problems.”
NAR 2009 President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said NAR pushed hard to extend and expand the home buyer tax credit though the middle of 2010. “Some people were taking a housing recovery for granted, but we must acknowledge the abnormal situation from toxic loans that will keep foreclosures coming into the market over the coming year,” he said. “To help stem foreclosures we must first stabilize home prices, and the expansion of tax incentives should absorb enough inventory to restore balance. As the leading advocate for homeownership, NAR commends Congress for extending and expanding the tax credit because placing financially qualified buyers into affordable homes is the soundest way to heal our economy as fast as possible.”
Buyers searched a median of 12 weeks and viewed 12 homes. Among buyers who used an agent, 63 percent selected a buyer’s representative. Eighty-seven percent consider their home a good investment, and more than half see it as a better investment than stocks. Twelve percent of buyers own two homes, while another three percent own three or more homes.
The typical repeat buyer was 48 years old, earned $88,100, purchased a home costing $224,500 and plans to stay in that home for 12 years.
The median down payment of all home buyers was 8 percent, and the number purchasing with no money down fell from 23 percent in 2008 to 15 percent in the current survey; 8 percent of buyers paid all cash for their home.
The median age of home sellers was 46 and their income was $91,100. Typical sellers had been in their home for seven years, up from six years in the 2008 survey, moved a median distance of 19 miles, and their home was on the market for 10 weeks. Nearly half traded up in size, 30 percent bought a comparable home and 22 percent traded down.
Eighty-five percent of sellers used a real estate professional, and 64 percent of sellers chose their agent based on a referral or had used the same agent in the past. Eighty-one percent of sellers are likely to use the same agent again or recommend to others.
Forty-two percent of sellers offered incentives to attract buyers, such as home warranties or assistance with closing costs. The typical home sold for 95 percent of the listing price, with a median increase over the seller’s original purchase price of $36,000. “Even with price declines in recent years, the typical home seller saw their equity increase 27 percent,” McMillan said.
Of sellers working with real estate agents, the study found that 80 percent used full-service brokerage, in which agents provide a range of services that include managing most of the process of selling a home from listing to closing. Nine percent of sellers chose limited services, which may include discount brokerage, and 11 percent used minimal service, such as simply listing a property on a multiple listing service.
All of these types of services are provided by Realtors as well as non-member agents and brokers, with comparable findings for each year since questions about brokerage services were added in 2006. Less than 1 percent of sellers chose an agent based on his or her commission.
Sellers largely want agents to price their home competitively, find a buyer, market the property and sell within a specific timeframe. Reputation was the most important factor in choosing an agent, cited by 36 percent of respondents, followed by trustworthiness at 21 percent.
Home buyers thought the most important services agents offer are helping find the right house, and negotiating sales terms and price. The most commonly cited benefits of using an agent are helping buyers understand the process, pointing out unnoticed features or faults, negotiating better contract terms, and providing a better list of service providers. Comparable to sellers, buyers chose agents based on a referral or had used them in a previous transaction, with trustworthiness and reputation being the biggest factors in selecting an agent.
Buyers use a wide variety of resources in searching for a home: 90 percent use the Internet, 87 percent rely on real estate agents, 59 percent yard signs, 46 percent attend open houses and 40 percent look at print or newspaper ads. Although buyers also use other resources, they generally start the search process online and then contact an agent.
When asked where they first learned about the home purchased, 36 percent of buyers said a real estate agent; 36 percent the Internet; 12 percent from yard signs; 6 percent from a friend, neighbor or relative; 5 percent home builders; 2 percent a print or newspaper ad; 2 percent directly from the seller; and less than 1 percent a home book or magazine.
Eight out of 10 home buyers who used the Internet to search for a home purchased through a real estate agent, in contrast with 63 percent of non-Internet users who were more likely to purchase directly from a builder or from an owner they already knew in a private transaction.
Local metropolitan multiple listing service Web sites were the most popular Internet resource, used by 60 percent of buyers; followed by Realtor.com and real estate company sites, each with 46 percent; real estate agent Web sites, 45 percent; other Web sites with real estate listings, 30 percent; for-sale-by-owner sites, 17 percent; and local newspaper sites, 9 percent; other categories were smaller.
Sixty percent of buyers are married couples, 21 percent are single women, 10 percent single men, 8 percent unmarried couples and 1 percent other. Fifteen percent are non-white, 9 percent were born outside of the United States, and 4 percent primarily speak a language other than English.
Seventy-eight percent of all respondents purchased a detached single-family home, 9 percent a condo, 8 percent a townhouse or rowhouse, and 5 percent some other kind of housing. Environmentally friendly features remain a significant factor: 88 percent of buyers said that heating and cooling costs were important, 72 percent desired energy efficient appliances, and 69 percent wanted energy efficient lighting.
Fifty-four percent of all homes purchased were in a suburb or subdivision, 18 percent were in an urban area, 17 percent in a small town, 10 percent in a rural area and 1 percent in a resort or recreation area. The median distance from the previous residence was 12 miles. The typical home size was 1,800 square feet, ranging from 1,600 for first-time buyers to 2,100 square feet for repeat buyers.
The biggest factors influencing neighborhood choice were quality of the neighborhood, cited by 64 percent of respondents; convenience to jobs, 50 percent; overall affordability of homes, 43 percent; and convenience to family and friends, 37 percent. Other factors with relatively high responses include quality of the school district, 26 percent; convenience to shopping, 26 percent; neighborhood design, 23 percent; and convenience to schools, 21 percent.
The difficulty of for-sale-by-owner transactions increased with challenging market conditions over the past year. The level of FSBOs was a record low 11 percent, down from 13 percent in 2008. The share of homes sold without professional representation has trended down since reaching a cyclical peak of 18 percent in 1997.
Many of these properties were not placed on the open market – 42 percent were “closely held” between parties who knew each other in advance, such as family or acquaintances. Factoring out properties that were not placed on the open market, the actual number of homes sold without professional assistance was a record low 6 percent – the rest were unrepresented sellers in private transactions. The market share of open-market FSBOs is nearly half of what it was five years ago – 10 percent were sold on the open market in 2004.
The median home price for sellers who used an agent was $215,000 vs. $172,000 for a home sold directly by an owner, but there were important differences. The median income of unassisted sellers was $76,900, in contrast with $94,200 for agent-assisted sellers, and the homes were more likely to be in a rural area. Unassisted sellers also were more likely to be selling a mobile or manufactured home. These factors suggest a somewhat lower value for FSBO properties.
The most difficult tasks reported by unrepresented sellers are preparing and fixing the home for sale, getting the right price, understanding and performing paperwork, and selling within the planned length of time.
NAR mailed an eight-page questionnaire in July 2009 to a national sample of 120,038 home buyers and sellers who purchased their homes between July 2008 and June 2009, according to county records. It generated 9,138 usable responses; the adjusted response rate was 7.9 percent. All information is characteristic of the 12-month period ending in June 2009 with the exception of income data, which are for 2008. Because of rounding and omissions for space, percentage distributions for some findings may not add up to 100 percent.
The 2009 National Association of Realtors Profile of Home Buyers and Sellers can be ordered by calling 800-874-6500, or online at www.realtor.org/newresearch. The study is free for NAR members but costs $125 for non-members.
The National Association of Realtors, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.