According to NAR, over 65% of all U.S. homes sold in 2016 went to repeat homebuyers. So why do we constantly see more spotlights on first-time homebuyers? For starters (no pun intended), the decline in overall homeownership rate has been largely attributed to first-time homebuyers, whose share of total buyers dropped to a near-30 year low in 2014. Secondly, it is presumed, rightly so, that the entrance of first-time buyers helps expand the overall U.S. housing market, as buyers typically don’t go back to renting by choice once they have owned their first home.
However, as the industry encourages more first-time buyers to convert to homeownership, it is important to remember that without repeat homebuyers who upgrade to bigger, more expensive homes, starter home inventory cannot be freed up for first-time buyers, and the market size would stay stagnant. It has been reported that home sales this Spring has been slowed by low inventory; and one key reason for the shortage is would-be sellers holding onto their current homes, concerned that they may not be able to find desirable homes to upgrade to. In other words, it is not far-fetched to say that not only are repeat buyers responsible for two-thirds of all home sales, they have a hand in helping close the other one-third as well.
Good news: repeat homebuyers are among the most optimistic housing cohorts today. According to the latest ValueInsured Housing Confidence Index, existing homeowners who are interested in buying/upgrading to another home in the near future enjoy a 75.0 housing confidence on a 100-point scale, compared to 67.7 confidence level among all Americans, 61.6 among non-homeowners, and 59.6 among first-time homebuyers. Existing homeowners are also the only group that reported an increase in housing confidence since January 2017. This comes as no surprise as rising interest rates, higher home prices and what has been dubbed "the strongest seller's market ever" have most benefitted existing homeowners in the current housing climate.
With such healthy level of housing confidence, what could be holding up potential upgrade buyers from selling and upgrading? The concern does not appear to be their ability to afford a down payment. In ValueInsured’s latest Modern Homebuyer Survey conducted in April, 8 in 10 (81%) potential upgrade buyers are confident they could afford the down payment to upgrade to the home they want.
From this quarterly survey, it appears repeat buyers may have at least two concerns that could be delaying their upgrade purchase:
- 76% believe there will be more interest rate increases this year, and 71% go as far as to agree “the era of affordable mortgages are coming to an end”. Given the historically low levels of interest rates and record high refinancing applications in the past four years, many of these potential upgrade buyers likely have recently refinanced and are hesitant to give up their existing low rate mortgage.
- Potential upgrade buyers may also be hesitant about possible market correction after they buy. 56% say they are concerned with buying at top of the market and worry prices could come down after they buy. While 74% believe now is a good time to sell, only 50% believe 6 months from now would be an even better time to sell, signaling the same concern for prices topping out. Perhaps an even stronger indication, 72% of all potential upgrade buyers who say they can afford a down payment to upgrade now say they would do so sooner if they could be more confident they would not lose their down payment even if the market goes down after they buy.
At over 2/3 of the housing market, upgrade buyers and their concern for a market correction are obviously not something to be ignored. Consider another set of telling data: last year, NAR reported the typical repeat buyer purchased a home that costs $250,000, 37% more expensive than a typical first-time buyer’s new home. In April, ValueInsured found 28% of all repeat buyers plan to spend $500,000 or more on their next home purchase, compared to just 6% of first-time buyers who budget to spend the same. So of course, the entrance of more first-time buyers will energize the housing market for years to come, but as they do, they will join the rank of repeat buyers, who remain the pillars that support the U.S. housing market.