The Home Buyers of Tomorrow
The 2014 California Association of REALTORS® Millennials Survey looked at those born between 1980 and 1996, or 18 to 34 year olds, who currently live in California. The Survey focused on renters and home owners and found that one in five are homeowners, 41 percent are renters and 36 percent live with their parents.
When looking specifically at 18-26 year olds, the Survey revealed that nearly half (49 percent) live with their parents. Demographically, they are very diverse—62 percent are minorities. This generation is known for delaying marriage and having children; the majority are not married and nearly half do not have children. They are, however, well educated; 46 percent of 27 to 34 year olds have a college degree and 42 percent of 18 to 26 year olds are currently enrolled in a college. Despite many having a higher education, their earnings and employment have some catching up to do. Only about half of echo boomers are currently employed, and only one-third have a full time job; 19 percent have a part time job, 24 percent are students and 20 percent are unemployed. This bleak employment situation translates to a median annual income of $35,000. There is a silver lining for earnings; older millennials (those between 27 and 34 years old) have a median annual household income of $50,000, compared to $30,000 for their younger
cohort (18 to 26 year olds). Renters Approximately two out of five millennials are renters, paying a median monthly rent of $1,075. Affordable rent is the most important reason for electing to live in their current residence and also why the majority rent instead of buying—67 percent said they rent because they cannot afford to buy. While they may not be able to afford to buy a home now, most Gen Y renters feel that homeownership is important because it gives them the freedom to do what they want with the property, and they expect to buy a property within the next five years. Echo boomers in California prefer single family homes, as two out of three indicated they plan to
purchase a single family home, compared to only 12 percent who plan to purchase a townhome or condominium. Contrary to popular belief, the ideal home for many would be on a big lot with lots of land
(42 percent) in the suburbs (41 percent). Fewer than
one in three indicated an urban location preference
for their ideal home. But a quality Realtor can help them find their best fit.
Investors have played a key role in the California housing market recovery for the past four years. Low mortgage rates, attractive home prices, and low yields on alternative assets have fueled demand for investment properties, particularly in markets where distressed homes have dominated sales. As the California real estate market has become more affordable in recent years, most investors purchased a property as a long-term investment.
Investors are attractive clients for REALTORS® because they are affluent and pay cash when purchasing properties. According to results from the 2013 California Investor Surveys from the California Association of REALTORS®, more than two-thirds of investors (67 percent) paid cash for their properties. Their primary motivation for purchasing real estate is based on the property’s profit potential and they are well-informed on the real estate business. Sixty-six percent of investors indicated they are going to keep the property for more than a year with the intent of renting, while about one-quarter (26 percent) of investors flipped or had the intention of flipping the property. Low interest rates and good rates of return have encouraged investors to hold onto properties and gain cash flows from renting.
The buying process begins long before buyers actually contact an agent. On average, buyers started considering a purchase nearly six months (23.7 weeks) before contacting a real estate agent, up notably from 12.2 weeks last year. They are also taking their time investigating homes and neighborhoods before contacting an agent, spending a little over seven months on this compared to about 1.5 months last year. The median number of weeks that buyers spent looking for a home with their agent also increased from 9 weeks last year to 9.8 weeks this year. The lengthier consideration time and home search reflect the limited availability of homes for sale and the increasing prices, which are causing buyers to weigh their options more carefully.
When they were finally ready to make a purchase, buyers tended not to move very far away from their previous homes—the median distance from their last residence was 27 miles. More than 8 out of every 10 buyers (85 percent) made offers on other homes and one-third claim they settled for the best option given the limited supply of houses. Price decreases, desire for a better location and favorable financing were the top three reasons that buyers purchased. Nearly half did not buy sooner because there were not many good housing options, others waited to see when prices would stabilize or had difficulty qualifying for a mortgage. The average buyer plans to stay in their home for six years.
Here are some interesting findings from the month of July 2013
A Tale of Two Markets
With the Federal Reserve signaling an impending scale back of its quantitative easing program,
interest rates soared in recent months. The average 30 year fixed rate jumped more than 100
basis points from 3.35 percent in early May to 4.46 percent in late June, and reached its highest
level since July 2011. The increase in mortgage rates had an impact on the housing market as
home sales in California pulled back slightly in June. Sales dropped on a month-to-month basis
for the first time in the last four months, and were down 3.7 percent when compared to June 2012.
Despite the decline in overall sales, higher-end markets continued to show strong growth on a
year-over-year basis. Sales above $500,000 increased 33.6 percent when compared to June
2012, and sales of million dollar plus homes jumped 31.7 percent from last year. This was
evident in coastal markets such as San Francisco County, Marin County, and Santa Cruz
county as all of them experienced double-digit sales increase in June. Lower price segments
of the housing market, however, continued to decline with sales under $200,000 dropping
43.6 percent from last June and sales between $200,000 – 300,000 decreasing 25.7 percent
The vast difference in sales trends between the lower and upper price ranges were due in
part to the constraint in the housing supply. Overall housing supply in June improved slightly
from the previous month but remained tight by historical standards. Inventory levels,however
vary across the board with a significant shortage in lower-price segments but are less
constrained in higher-priced markets. The supply of homes priced under $300,000,for example
dropped 47.1 percent from last June, while inventory for million dollar homes increased 7.5
percent when compared to last year.
Modest Increase in Home Prices Is Expected in 2013 – Article
With the California median home price in 2012 surging by double-digit from 2011, there are concerns about the market entering into another period of housing speculation. Discussions on whether the current housing market recovery and the recent asset price boom are justified surface from time to time and the debate will continue in 2013. What is clear from evidence suggested by surveys and research studies, however, is that current conditions for the housing market and for real estate financing are healthier than the environment that we observed in the mid of 2000’s before the housing market started deteriorating.
The environment for housing finance in 2012 required home buyers to be more responsible financially than they were in 2006. Recent home buyers had more “skin in the game” than many of those who purchased a few years ago when the housing market was at its peak. In general, more buyers were putting a bigger down payment on their home purchased, while there were fewer buyers with zero down payment. The share of buyers who used a second lien to finance their property also shrank significantly from the peak of the current housing cycle, and those who opted for an Adjusted Rate Mortgage (ARM) took a dive from the mid of 2000’s. There were also more buyers offering all cash to pay for their house in 2012, as cash buyers in the current market made up nearly three times what it was in 2006.