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During the January Broker Power Hour hosted by the National Association of REALTORS®, Jessica Lautz, deputy chief economist and vice president of research, provided a wealth of economic updates and industry trends to better equip brokers with the information they need to run their businesses.
A Look Back at 2023
Lautz started off by acknowledging that 2023 was a hard year for the industry, but that projections for the spring 2024 market looked favorable.
In 2023, home sales were the lowest they’d been since 1995, which didn’t jive with the country’s population growth since that time. The culprit, Lautz said, is inventory.
“In 1995 there were about 1.6 million units in the marketplace, whereas in December 2023, there were under 900,000 units in the market.”
Lack of inventory means high demand and therefore higher prices. In some areas of the country, Lautz cited a 45% increase year-over-year in pricing. The low interest rates of the early pandemic brought buyers into the market who might not have entered it otherwise, buying new primary residences as well as vacation homes and future retirement homes. “It really put a crunch on inventory,” and contributed to price increases.
A Favorable Outlook for Spring
It’s no secret to anyone in the industry that 2023 was a rough year, Lautz said, however, interest rates are trending down, which should mark an upturn in market activity by spring.
On the 30-year fixed-rate mortgage, interest rates were nearly 8% in October but are now averaging around 6.6%.
“This difference in interest rate saves people about $260 per month on payments for those buyers who are putting 20% down on a home.”
Lautz noted that the current average is down from the historic average, which is 7.74% and that practitioners should counsel their customers that we will not see rates of 2% or 3% again in our lifetime.
Issues with Affordability
Affordability is still one of the main issues would-be homeowners face today. “The cost of a home isn’t just price and mortgage. It’s about income,” Lautz says.
According to NAR’s affordability index, the typical home buyer in today’s market is spending approximately 27% of their income on their monthly mortgage payment, when the historic norm has been 20%.
Lautz said first-time home buyers are entering the market both older and wealthier, but employees integral to their communities—teachers, social workers and firefighters, for example—are still being priced out.
A Breakdown by Generation
Generations buy homes differently. It's important to look at how each operates in the market to get a holistic view of the trends.
Baby Boomers
This cohort still holds the largest share of the housing market, and half of them are buying in cash. Many Boomers have stayed in their homes for several years and are reaping the benefits of equity. They’re also thinking about the future, which for many means retirement in more affordable areas.
Though older buyers historically chose to downsize for retirement or after the children left the home, that’s not the case anymore. Lautz says older repeat buyers have the equity and cash to maintain their lifestyle and want to do so. They like newer builds and amenities and are buying their new “forever home,” which statistically means they plan to stay in the home for 20 years or more.
Buyers in all age groups are seeing the value and the convenience of green and smart home features, even the oldest ones, Lautz says. Older buyers have the money to spend on these features and likely recognize that said features could make life easier, which makes aging in place a reality.
Gen-X
Though this generation has mostly remained consistent in the market, one trend is that they’re the most likely to purchase multigenerational properties. Lautz says that there’s quite a bit of financial burden on this particular generation.
Millennials
The median age of today’s first-time buyers is 35, which represents the near middle of the millennial generation. Historical norms for first-time buyers’ ages are 28-29 years old.
This is significant for a few reasons, Lautz says. The first is that a 35-year-old buying a home likely has different housing needs than that of a 28-year-old. Additionally, a 35-year-old first-time buyer has missed out on quite a few years of equity than that of a 28-year-old buyer. Today’s first-time buyer is in a very different place in terms of their needs than they would have been historically.
Implications of Generational Trends
With the increase in age of a first-time home buyer, years of equity, and therefore wealth, is lost, Lautz says. The increase also means one less housing trade than was previously the norm. Additionally, buyers who are partnered or have children have different housing needs than their predecessors, who were typically buying smaller homes and condos.
The baby boomer generation has the most housing wealth in addition to representing the biggest share of the market, so they’re putting a lot of pressure on the market, especially when it comes to inventory and cash sales.
Sticky Trends
A “sticky trend” simply means that a specific behavior within the market looks like it’s going to “stick” despite fluctuations in the economy or otherwise. Lautz identified a few, which she’s been watching for quite some time.
Migration
More than ever before, Boomers and the Silent Generation are willing to move far distances to be near friends and family. In many cases, they’re willing to move across multiple states to be close to a grandchild.
The Sunbelt and mountain states are still the most popular, because after all, many favor sun and temperate weather, a view and/or favorable tax regulations.
People are also willing to move farther than before. From 1989-2022 people moved 10-15 miles. During the pandemic, this figure jumped to 50 miles, with a quarter of those people having moved over 470 miles. It has fallen back down to 20 miles, however, but people are still willing to move further than the historic norm.
Buying Sight-Unseen
The pandemic spurred an uptick in buyers purchasing homes without seeing them in person. Some of this was due to isolation orders and general safety concerns and some of it was due to the sheer distance people were moving.
Though isolation orders have subsided, and most people are out and about in a pre-pandemic fashion, buyers are still moving further than they would have in the past, which means they might not be readily available in the market in which they’re shopping. Lautz notes that 9% of buyers last year purchased their home completely sight-unseen.
The importance of this trend relates to how a home is presented, she says. “We (need to) think about everything practitioners do to showcase a home: virtual tours and staging, floor plans and even making sure your Facetime is ready to go.”
Some Good News
Tumult characterized the market and the association in 2023, but Lautz says there are still positives that practitioners should take to heart.
First, homeownership is still an important way to build wealth and live the American dream. NAR data shows that “the average net worth of homeowners is around $400,000 whereas renters are at $10,000. That’s really important. We’re bad savers as Americans and homeownership is a great way to build wealth,” Lautz says.
Additionally, nine out of 10 buyers and sellers want representation when buying or listing their homes. Buyers need help negotiating and finding the right home, whether they’re first timers or repeats in the market. Today’s market is vastly different from that of a decade ago, and buyers need someone to help them navigate it. Similarly, sellers rely on agents to help them develop a price point, market the home and negotiate on their behalf. On a similar note, For-Sale-By-Owner, or FSBOs, are at a historic low at 7%.
Broker Power Hour is a bimonthly, virtual event offering brokers the information and tools they need to navigate the market and their businesses. It’s offered as an NAR benefit. For more information and to register for the next Power Hour, check out broker.realtor.
