Lessons from the Pros

Real Estate

The Changing Profile of the Real Estate Buyer

Over the years I’ve written articles about the changing demographics of home buyers and what investors need to know to be ahead of the curve. There is some new data that further supports the changes happening in the market.

The three types of buyers we see most prominently in the market today are: all-cash buyers, first-time home buyers, and 55+ buyers.

First-time home buyers are still the largest single segment of the market with 39% of the market; this is up 2% from last year but down from 2010 and 2009 (that is when buyers were taking advantage of the home buyer tax credit).  First time home buyers are still very active because of low interest rates; however the continuing tightening of lending standards has played a role in the drop we’ve seen in this segment.

All cash buyers are also a very large segment of the market.  They have increased to 30 percent of sales where they were only 10 percent of the market over a decade ago.  Lawrence Yun, chief economist of the NAR (National Association of Realtors) said, “We’ve seen a tremendous increase in cash buyers since the housing downturn that we haven’t seen before in history.” He went on to say that the increase in more buyers paying cash is a reflection of tight lending conditions, an increase in investor sales and international buyers. 62 percent of international purchases were all cash. That number has continually increased since 2007, shown by NAR research.

Our third segment that is growing is the 55+ housing market.  The most recent Housing Market Index (HMI) shows that builder confidence in the 55+ housing market for single-family homes is on a significant rise; the index has more than tripled year over year from a level of 12 to 36, which is the highest third-quarter reading since the inception of the index in 2008.

For this segment of the market to continue to grow, however, the existing market has to continue to recover.  Many of the 55+ buyers will have to find a buyer for their current home so that they can buy in this new market. NAHB (National Association of Home Builders) Chief economist David Crowe said that while we expect the upward trend to continue as the recovery broadens, the speed of the recovery is being constrained by factors such as tight mortgage credit, making it difficult for the potential 55+ customers to sell their current homes, and shortages of inputs to construction such as buildable lots that are beginning to emerge in some market areas.”

How are these buyers doing their research and finding properties?  NAR conducts an annual survey of homebuyers and sellers.  In November, the most recent version was made available (Profile of Home Buyers and Sellers 2012).  This is a 120 question survey mailed to a random sample of over 93 thousand consumers who purchased homes between July 2011 and June 2012.  The survey shows that the internet is the way most are looking for properties, this up 5% (79% 2012 vs 74% 2011).  In comparison, back in 2003 the percentage of buyers researching on the internet was only 42%.  Buyers use multiple sources of information: first the internet, second agents and surprisingly third is still yard signs.

The sites most used were www.realtor.com, a specific real estate company site and then sites hosted by agents with a MLS feed (we use these sites in the Professional Real Estate Investor Class).

I found it so interesting, the difference a decade can make.  In 2001, 48% of buyers learned about their home through a real estate agent, and only 8 percent found their home on the internet.

As investors, we need to stay apprised of these changes in what buyers are looking for and how they find in it.

Great Fortune

Diana Hill


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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