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Tight Credit Continues to Impact Homebuyer Market

NationalMortgageProfessional.com
Nov 04, 2013

Although the housing market has shown a healthy recovery over the past two years, unnecessarily restrictive mortgage lending standards are preventing some financially qualified buyers from reaching their dreams, especially singles and first-time buyers, according to an annual study recently released by the National Association of Realtors (NAR). The 2013 National Association of Realtors Profile of Home Buyers and Sellers continues a long-running series of large national NAR surveys evaluating the demographics, preferences, motivations, plans and experiences of recent home buyers and sellers; the series dates back to 1981. Results are representative of owner-occupants and do not include investors or vacation homes. “Single home buyers have been suppressed for the past three years by restrictive mortgage lending standards, which favor dual-income households who are more likely to have higher credit scores,” said Lawrence Yun, NAR chief economist. “Not seen in this survey is the elevated level of investors in recent years. The housing recovery would have been much weaker without investors, who often purchase with cash.” Sixty-six percent of buyers responding to the survey are married couples, 16 percent are single women, nine percent single men, seven percent unmarried couples and two percent other. In 2010, 58 percent of buyers were married, 20 percent were single women, 12 percent single men and seven percent unmarried couples. The overall market share of single buyers declined from 32 percent in 2010 to 25 percent in both 2012 and 2013. In the years up through 2010, the market shares were stable, usually moving only one or two percentage points. “Given that mortgage interest rates are expected to gradually rise, we need greater access to credit for a sounder housing recovery," said Yun. "Affordability conditions remain favorable in much of the country, but consumers need access to safe and sound financing, particularly the 30-year fixed-rate mortgage, and with low downpayment options for first-time buyers." Fourteen percent of all survey respondents were multi-generational households, including adult children, parents and/or grandparents. “We don’t have historic comparisons for this finding, but added the question to this year’s study because we’ve been hearing more about this trend from our Realtor members,” Yun said. “It’s another manifestation of the difficulty in obtaining a mortgage, in addition to slow growth in good paying jobs.” First-time homebuyers slipped to a 38 percent market share in the past year from 39 percent in the 2012 study. The long-term average in this survey, dating back to 1981, shows that four out of 10 purchases are first-time buyers. “The share of first-time buyers appears to be only modestly below normal, but we have to keep in mind that investors have been more active in recent years, and they’re not included in these results,” Yun said. “Historically, first-time buyers are instrumental in housing recoveries because they help existing home owners sell and make a trade.” The median age of first-time homebuyers was 31, unchanged from 2012, and the median income was $67,400. The typical first-time buyer purchased a 1,670 square-foot home costing $170,000, while the typical repeat buyer was 52 years old and earned $96,000. Repeat buyers purchased a median 2,060-square foot home costing $240,000. When asked about the primary reason for purchasing, 60 percent of first-time buyers cited a desire to own a home of their own. For repeat buyers, 16 percent wanted a larger home, 12 percent had a job-related move and another 12 percent said they just wanted to own a home of their own. Responses for other reasons were in the single digits. Nearly nine out of 10 buyers financed their purchase. The median downpayment ranged from 5 percent for first-time buyers to 14 percent for repeat buyers. First-time buyers used a variety of resources for the loan downpayment:  78 percent tapped into savings; 27 percent received a gift from a friend or relative, usually from their parents; and seven percent received a loan from a relative or friend. Nine percent sold stocks or bonds and eight percent tapped into a 401(k) fund. Among entry-level buyers who said that saving for a downpayment was difficult, 54 percent said student loan expenses delayed savings. Ninety-five percent of entry-level buyers chose a fixed-rate mortgage, four out of 10 financed with a low-downpayment FHA mortgage, and eight percent used the VA loan program with no downpayment requirements. Eight out of 10 recent home buyers said their home is a good investment, and 44 percent believe it’s better than stocks; 91 percent were satisfied with the buying process. “Interestingly, 6 percent of all buyers had previously sold a foreclosure or short sale, showing that sellers of distressed property are beginning to recover financially,” Yun said. The typical buyer began their home search online and then contacted a real estate agent. Buyers searched a median of 12 weeks and visited 10 homes. Buyers used a wide variety of resources in searching for a home. Top results showed 92 percent used the Internet, 89 percent used real estate agents, 51 percent yard signs, 45 percent each attended open houses and used a mobile application, and 42 percent used mobile search engines. When buyers were asked where they first learned about the home they purchased, 43 percent said the Internet; 33 percent from a real estate agent; nine percent a yard sign or open house; six percent from a friend, neighbor or relative; five percent from home builders; two percent directly from the seller; one percent a print or newspaper ad; and less than one percent from other sources. Ninety percent of home buyers who used the Internet to search for a home purchased through a real estate agent, as did 69 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. While sellers had been in their previous home for a median of nine years, first-time buyers plan to stay for 10 years and repeat buyers plan to hold their property for 15 years. The biggest factors influencing neighborhood choice were quality of the neighborhood, cited by 63 percent of buyers; convenience to jobs, 48 percent; overall affordability of homes, 40 percent; and convenience to family and friends, 38 percent. Other factors with relatively high responses included quality of the school district, 29 percent; neighborhood design, 28 percent; convenience to shopping, 26 percent; convenience to schools, 22 percent; and convenience to entertainment or leisure activities, 20 percent. Commuting costs remain a significant factor, with 73 percent of buyers saying transportation costs were important in the purchase decision process. “Green” features also played a role, with 85 percent saying heating and cooling costs were important, and 68 percent wanting energy efficient appliances. Eighty percent of respondents purchased a detached single-family home, seven percent a condo, seven percent a townhouse or rowhouse, and six percent some other kind of housing. The typical home had three bedrooms and two bathrooms. Fifty-three percent of recent purchases were in a suburb or subdivision, 18 percent in a small town, 16 percent were in an urban area, 11 percent in a rural area and three percent in a resort or recreation area. The median distance from the previous residence was 12 miles. 88 percent of respondents used real estate agents and brokers to purchase a home, seven percent purchased directly from a builder and five percent directly from the previous owner; 61 percent of buyers working with real estate professionals had a buyer representative arrangement. The typical home seller was 53 years old and their income was $97,500. Sellers moved a median distance of 18 miles and their home was on the market for five weeks, down from 11 weeks in the 2012 study. Forty-five percent moved to a larger home, 27 percent bought a comparably sized home and 29 percent downsized. Thirteen percent of sellers wanted to sell earlier but were stalled because their home had been worth less than their mortgage. The typical seller, who purchased a home nine years earlier, realized a median equity gain of $25,000, a 13 percent increase over the original purchase price, while sellers who were in their homes for 11 to 15 years saw a median gain of $52,000, or 28 percent. Sellers typically found a real estate agent through a referral by a friend, neighbor or relative, or used the agent in a previous transaction, together cited by 63 percent of respondents; 83 percent are likely to use the agent again or recommend to others. Like sellers, buyers most commonly choose an agent based on a referral, or had used the agent previously, mentioned by 54 percent of respondents, with trustworthiness and reputation being the most important factors; two out of three buyers interviewed only one agent. Eighty-six percent of buyers are likely to use the same agent again or recommend to others. Of sellers working with real estate agents, the study found that 81 percent used full-service brokerage, in which agents provide a broad range of services and manage most of the aspects of selling a home. Nine percent of sellers chose a limited set of services, and 10 percent used minimal service, such as simply listing a property on a multiple listing service. Realtors provide all of these types of services, as do non-member agents and brokers, with similar findings for each year since questions about brokerage services were added in 2006. For-sale-by-owner transactions accounted for nine percent of sales, matching the record lows set in 2010 and 2012; the record high was 20 percent in 1987. The share of homes sold without professional representation has trended lower since last reaching a cyclical peak of 18 percent in 1997. Factoring out private sales between parties who knew each other in advance, the actual number of homes sold on the open market without professional assistance was six percent. Twelve percent of all FSBOs said they had been contacted directly by a buyer and were not actively attempting to sell their home. The median sales price for owners who used an agent was $230,000, well above the $184,000 median for a home sold directly by an owner, but there were important differences. The median income of FSBOs was $86,200, in contrast with $99,900 for agent-assisted sellers, and they were more likely to be selling a smaller home, suggesting a lower home value for unassisted sellers. The most difficult tasks reported by FSBOs are getting the right price, preparing or fixing up the home for sale, and understanding and completing paperwork.
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