Between rising prices, low inventory, and fierce competition, homebuyers have been through the ringer in 2021. What effect have these conditions had on homebuyers?
As part of a quarterly survey, the National Association of Home Builders and Morning Consult asked nearly 20,000 adults to share their perceptions on the housing market. Sixteen percent or nearly 3,200 respondents planned on buying a home in the next 12 months.
Here are five perceptions trending among adults that plan on buying a home in the next year.
What's in this Article?
The share of adults with homebuying plans, or prospective buyers, increased for five consecutive quarters from Q1 2020 to Q2 2021. In that time, prospective buyers increased from 10% to 17%.
That streak was broken in Q3 2021 as the share fell to 16%. This is likely due to a combination of buyer fatigue and seasonal cooling in the housing market, although the 2021 fall market has been much more active than typical years.
The share of prospective buyers actively trying to find a home also fell in Q3, breaking a six quarter streak of increases dating back to the beginning of 2021. Fifty-seven percent of prospective buyers were actively looking in Q3, down from 61% in Q2.
The largest declines came in the South and West where high demand and low inventory have caused home prices to surge in 2021.
The share of prospective buyers purchasing their first home increased for the fourth straight quarter to 65%. That’s likely due to a combination of factors:
- Low interest rates and pandemic savings are bringing more first-time homebuyers into the market
- A wave of millennials are aging into prime homebuying years and commanding a larger share of the market
- First-time homebuyers are struggling to keep up with rising prices and are thus remaining prospective buyers, instead of homeowners
At 69%, the Midwest boasts the highest share of first-time homebuyers. Generationally, first-time buyers make up a larger share of each age group.
|Generation||Share of 1st-timers in Q3 2020||Share of 1st-timers in Q3 2021|
New home, old home — buyers don’t seem to care anymore as long as it’s affordable.
In the fourth quarter of 2020, 42% of prospective buyers were looking for a newly built home. But as prices took off in 2021 share dropped to 32% in the Q3 2021. Buyers are now nearly evenly split between looking for a new home (32%), an existing home (33%), or either (34%).
According to U.S. Census Bureau and HUD data, the median sales price of a new home reached $403,333 in Q3 2020, up from $333,233 the previous year. Generation Z and Generation X were particularly turned off by new homes in the past year, while millennials and boomers were not.
|Generation||Share of buyers who’d prefer a new home in Q3 2020||Share of buyers who’d prefer a new home in Q3 2021|
In Q3 2021, “getting outbid when I make an offer” was the top reason homebuyers searching for three or more months had not been successful. This reason stunted more homebuyers (45%) than:
- Finding a home at an affordable price (36%)
- Finding a home with desired features
- Finding a home in a desired neighborhood
This is only the third time in the history of the NAHB Housing Trends Report that getting outbid was the primary reason homebuyers couldn’t seal the deal.
The share of prospective homebuyers that expected easier home availability in the months ahead peaked at 36% in the final quarter of 2020 — just before the 2021 market took off. That share has since fallen to 25% in Q3 2021 after a year of high prices and low inventory.
Generation Xers and boomers were least likely to expect housing availability to improve at 20% and 9%, respectively.
Active listings declined substantially in the year ending in Q3 2021, according to data from Realtor.com. However, housing availability increased from Q2 to Q3 in 2021.
|Active listings Q3 2020||Active listings Q2 2021||Active listings Q3 2021|
Declining inventory led to a decline in affordability. In Q3 2021, 73% of prospective buyers could afford less than half of the homes in their market. That’s up from 63% in Q4 2020.
According to Redfin, a national real estate brokerage, the national median for days on market for July, August, and September was 15, 16, and 18 days, respectively. Fifteen days on the market in July represents the fastest time on market in history. However, homebuyers are spending much more time in the market than sellers are.
Two-thirds of active buyers spend 3+ months searching for a home in Q3 2021, up from 57% in Q4 2019. This was true for at least 62% of buyers in each region and especially impacted millennials. Seventy-nine percent of millennials spent 3+ months looking for a home in Q3 2021, compared to 62% the year before.
2021 was a rough year for many homebuyers, but despite low expectations, better days may be ahead. Bidding wars fell to the lowest rate of the year in September and housing demand is expected to slow in the coming months, which may provide a window of opportunity for prospective buyers.