Just about everyone knows the housing market is blisteringly hot right now. One look on Realtor.com® will confirm there aren’t many homes for sale— and what is on the market has a supersized price attached to it.
However, even in such a challenging market, first-time homebuyers were able to beat back competition from swarms of millennials, cash-rich investors, and baby boomers looking to downsize, and purchase about a third of all of the homes for sale, according to the National Association of Realtors® annual Home Buyers and Sellers Generational Trends Report. They represented about 34% of buyers, up from 31% in the previous year.
“Given everything with the [COVID-19] pandemic and the shortage in inventory, it’s encouraging seeing younger buyers entering homeownership,” says Brandi Snowden, director of member and consumer survey research at NAR.
The report is based on a 129-question survey filled out by nearly 5,800 people who bought a home to live in between July 2020 and June 2021. Income data is from 2020.
Millennials made up 43% of homebuyers in the past year—compared with 37% in the previous one. However, older millennials, aged 32 to 41, were more likely to be selling their first homes rather than entering the market for the first time.
“Many people recognize that a house offers not only shelter but also a long-term store of wealth, which has enabled prior generations to build a solid financial foundation, and even move higher on the socioeconomic ladder,”says George Ratiu, manager of economic research at Realtor.com. “In times of rising inflation, buying a home can serve as a way to control spiraling costs, by either locking in a fixed rate or possibly minimizing monthly expenses.
“With rents also surging, many first-time buyers may lower their monthly expenses by buying a home in markets where the monthly cost of a mortgage payment is lower than comparable rent,” he says.
Who’s out there competing for homes?
In such an overheated market, with many more buyers than homes for sale, it’s good to understand the competition.
Millennials have made up the biggest percentage of homebuyers since 2014. About 81% of younger millennials, aged 25 to 31, and 48% of older millennials were first-time buyers. “As millennials transitioned from one stage of life to the next, their preferences shifted from renting in urban downtowns to buying in the suburbs,” says Ratiu. “These trends started before the COVID pandemic but accelerated as health concerns, social distancing, and remote work became the norm. Due to the sheer size of the [generation], millennials are the dominant demographic group in today’s housing market.”
Baby boomers, many seeking their forever homes, purchased the second most properties, often competing with millennials for smaller, more affordable abodes. Younger boomers, aged 57 to 66, made up about 17% of buyers, while older boomers, aged 67 to 75, bought about 12% of homes.
They were followed by Generation X, aged 42 to 56, who made up 22% of recent buyers. These buyers were often looking for larger, trade-up homes. The silent generation, aged 76 to 96, purchased 4% of homes, while members of Gen Z, aged 18 to 22, represented just 2% of homebuyers.
With prices hitting new highs and many sales going for well over the asking price, buyers were wealthier with a median household income of $102,000. They were also overwhelmingly white, at 82%, and heterosexual, at 89%, of buyers. Just 6% were Black, 6% were Asian, and 7% were Hispanic. (Respondents could select multiple races, and 2% chose other.)
Nearly two-thirds were married couples. Many were two-income households, often giving these buyers an edge in affording high housing prices and the bidding wars that followed. Single women, often living off of just one income, represented about 19% of buyers. Roughly 9% of single men were in the market as well as 9% of unmarried couples.
“While younger generations have postponed major traditional life decisions, like marriage, they recognize that buying a home does not have to be tied to a specific life stage,” says Ratiu. “Single women see real estate as an important component of economic well-being and long-term financial stability.”
Why are homebuyers braving the challenging housing market?
Even in the face of such a daunting struggle—finding a home that met their needs, coming up with the money to afford it, and prevailing in a bidding war —buyers weren’t dissuaded.
The top reasons to purchase a home—even in this crazy market—were that they wanted to own a property of their own; they wanted larger residences; they wanted to be closer to family and friends; there was a change in their family circumstances, such as a marriage, divorce, or birth of a child; or they sought a property in a better location.
However, nearly three-quarters of buyers were forced to compromise on
what they wanted in a home.
About 27% of all buyers compromised on price, while 21% settled on the home’s condition. Buyers also made trade-offs on the size of their residences and their yards along with the distance from their family, friends, and jobs.
“Buyers are compromising more because of the lack of homes available to view,” says Snowden. The overwhelming majority of buyers, 87%, took out mortgages to finance their homes. They were helped by record-low mortgage rates, which fell to the mid-2% range in late 2020 and early 2021. (Rates have since shot up over 4% on 30-year fixed-rate loans, according to Freddie Mac.) And the median down payment was 13% of the sale price of the home.
What do today’s buyers want in a home?
As the pandemic dragged on, buyers continued to prefer their own space. The majority, about 82%, of home sales were for existing homes, which are previously owned abodes. Only about 15% of sales were for new construction, mostly from buyers who didn’t want to deal with renovations or problems with the house and wanted to customize their new abode.
Just 7% of sales were for townhouses and row homes, 3% were for duplexes and condos in two- to four-unit buildings, and 1% was for condos in larger buildings.
The typical home cost a median $305,000, spanned 1,900 square feet, and had three bedrooms and two bathrooms. It was built in 1993.
Despite all of the headlines screaming that city dwellers were leaving in droves, the percentage of folks buying in the cities and suburbs remained mostly unchanged over the past two years. Most buyers moved only a median 15 miles away from their previous homes—not across the country, Just over half of all buyers, 51%, purchased in the suburbs; 21% bought in small towns; 13% purchased in cities; and 12% became homeowners in rural areas. Just 3% purchased in vacation areas. “We’re not seeing huge differences,” says Snowden.
Home sellers continue to make big profits.
Many home sellers made some big money off the sale of their properties, pocketing about $85,000 over what they originally paid for their abodes. They typically lived in their homes about eight years.
Sellers typically got the prices they wanted for their homes with only about a quarter reducing the list price of their properties. Their homes sold for a median $315,000.
“The steep price appreciation of the past two years topped a decade of steady price gains, the result of a growing economy and lack of meaningful new construction,” says Ratiu. “For many homeowners, even some who may have purchased fairly recently, the jump in prices meant that they were able to sell for significantly more than what they paid for their house.”
In such a hot market, only about a quarter of sellers reduced the list price of their homes. Not surprisingly, baby boomers represented the largest percentage of home sellers, at 42%.
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