As we prepare to close out another Summer and head into Fall, the talk across the real estate market last month has been centered on the ‘cooling’ housing market. With little changes in sky-high housing prices and mortgage interest rates continuing to increase through 2018, many economists believe homebuyers are finally balking at buying a home in the current conditions.
The latest numbers from July found that home sales declined for the fourth straight month — the longest dip since 2013. Did we finally hit peak affordable housing crisis? The macroeconomic data appears to support that homebuyers may have finally hit the sky-high limit they’re willing to stretch for to buy a home. At first glance, it seems so. And, due to that, overall housing supply across the U.S. is steadying. Homes are going below asking prices and bidding wars are dwindling — in some of the most competitive housing markets in the country such as Seattle, the Bay Area, and Austin.
But, is this recent slowdown already impacting buyers on Main St.? While economists point to this as a turning point and the potential start of a years-long slowdown, how are today's active homebuyers actually feeling in their home search?
The team here at Open Listings wanted to find out. To do so, we conducted a survey this August with 500 active homebuyers who indicated they are planning to buy a home within the next twelve months.
The respondent group was nearly evenly split between first-time and repeat homebuyers and included those currently on the home hunt in very competitive housing markets such as Los Angeles, Seattle, Austin, San Francisco, and San Diego -- and slightly less competitive ones, such as Dallas, Sacramento, and Chicago.
Here’s what we found:
Lukewarm feelings around a cooling housing market
Active homebuyers were slightly more likely to say their local real estate market is currently staying the same (37%), rather than getting hotter (33%) or cooling down (31%).
The fact that answers were almost equally split illustrates just how hyperlocal and personal feelings on the homebuying front can be. It also may point to buyers defining ‘cooling’ in many different ways.
That said, overall, it’s safe to say that active homebuyers are not seeing the immediate ‘cooldown’ that many macroeconomists have been touting.
When we got a bit more specific and asked active homebuyers “if they have seen an increase or decrease in competition from other buyers as they’ve gone about their home buying process over the last 30 days,” the most common answer was no change in competition (43%) or an increase in competition (35%), rather than a decrease in competition (22%).
Most surprisingly, these answers were nearly identical across both competitive and less competitive housing markets.
Mortgage rate increases aren't seen as a big detractor
Active homebuyers were also lukewarm when it came to the impact that increasing mortgage rates are having on their current house hunt. When asked which factor would most make buyers reconsider their current house hunt, far fewer active homebuyers (7%) chose “if mortgage interest rates increased," compared to if housing prices dipped (30%) or increased (28%), or if fewer homes met their search criteria (16%).
It appears that with current active homebuyers, interest rates are the least of their worries. The biggest reason for their lack of worrying around rates may be due to the fact that these active homebuyers have been on the hunt for a long time -- and the hefty listing prices they see continue to be a primary concern.
Buyers are feeling beat down by lengthy house hunts
The majority (28%) of homebuyers we surveyed that are looking to buy a home within the next twelve months have already been on the home hunt for over a year.
The next most common amount of time spent on the market was 1-3 months (24%). Again, the numbers were nearly identical across very competitive, and slightly less competitive, housing markets.
Perhaps, the lack of a middle ground between those just starting their search and those that won’t give up, illustrates that many active homebuyers may window shop for a bit before the sticker shock of the current market sends them running.
Only those that are truly determined and motivated to buy a home now are sticking with a search that is now measured in years rather than months.
Furthermore, it seems as though almost all the homebuyers we surveyed are doing a lot of advanced research and aren’t propelled by some sort of external clock to buy at this moment.
This was also evident in buyers saying they haven’t made a single offer yet (65%) -- despite many being active for more than a year. The next most common offers made by active buyers was 1 (20%), followed by 3 (11%).
The trend here looks to be pointing to major inventory shortages on the market. The Washington Post and MarketWatch have similar theories on what’s going on competition-wise. The Post points to a lack of inventory, with MarketWatch taking it a step further, saying that “demand is hot, but supply is not,” suggesting that there’s only so much to go around - and active homebuyers are all vying for it.
Qualitative feedback from active homebuyers to our survey suggests the same:
- “Because housing prices are too high for what the actual value of the house is. There is also no good selection of houses in areas I prefer.”
- “I've been hunting for a house for 3+ years and have grown frustrated many times. But I always go back.”
- “It was overwhelming/disappointing to see what was in our price range.”
- “Can't find a house that's suitable for what we can afford.”
- “Very small supply of homes in neighborhoods we’re interested in.”
- “Houses are either too small for too much money, or just expensive per [square foot] for what they are.”
- “There is too little supply in the price range we are looking for. All homes sell for at least 30% over list price.”
Buying ASAP, or taking a break?
With so much stress on homebuyers, it’s no surprise that when we asked them when in the next year they plan to buy their home, the most common answer was split between “as soon as I can” (41%) or in the next 6-12 months (41%). It was far more unlikely for homebuyers to see a path towards buying a home within the next 3-6 months (18%).
Those in competitive markets were even more likely to say “as soon as I can” (45%), showing there is a real impetus to a buy a home -— if the market would only provide them some real options.
Those that can’t find a home solution soon may finally be looking to get out of the homebuying market altogether — which could be the biggest driver of a future, long-term slowdown.
Over 60% of active homebuyers surveyed said they’ve considered taking a break from their current house hunt as the market continues to batter them. The number was even higher for those in competitive markets (63%).
The reasons for taking a break from their house hunt ranged from simply needing to de-stress, to agreeing with economists that a slowdown may be ahead for us, to contemplating if home ownership is even worth it anymore.
A few verbatims:
- “Too stressful to continuously search.”
- “We’re thinking about waiting for better inventory.”
- “It has been overwhelming.”
- “Thought about taking a break to get myself more financially ready.”
- “We can’t find the right place for our price - it’s a competitive price point. So we may have to increase the price point. Need to regroup!”
- “Believe economy may turn down and there may be a better opportunity to buy later this year.”
- “Hoping that the market will stabilize and bidding wars will stop or at least slow down. It feels like a balloon ready to pop -- like the Seattle market is out of control.
- “Because San Jose housing is insane, and what's the point to buy any more?”
Although the majority of active homebuyers don’t visibly see less competition in their local real estate markets quite yet and remain somewhat blasé towards increasing interest rates, there are signs that the unrelenting housing price increases and lack of inventory are beginning to take a toll.
Active homebuyers' confidence in finding a home at a price point which fits their needs is low. Even the most determined of buyers appear open to pausing their house hunt, with some even sensing that a slowdown may be on the horizon if they sit on the sidelines for a while.
Although many note they would reconsider options if housing prices dip, this could eventually lower demand considerably, ‘cooling’ the market beyond seasonal trends.
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