You may have heard the term “crying it out” or “CIO”; if you haven’t, your Gen-X and millennial clients with young families most certainly have. But we’re not here to discuss parenting or sleep-training tips. There is a new trend in housing: increasing number of millennial and Gen-X homebuyers are now “waiting it out”.
In the latest Q3 2018 ValueInsured Modern Homebuyer Survey, 2 out of 3 (67%) of all millennial first-time homebuyers say home prices in their area are too high. These are a sub-segment of millennials who express a strong interest and eagerness to buy a home now, filtering out their contemporaries who prefer to be lifelong renters or show less interest in the American Dream. Despite their readiness to buy, 56% among this subset say they are “waiting it out” and staying on the purchase sideline. Most of these potential first-time homebuyers have considered rising mortgage rate as a reason to buy sooner, but discouraged by unaffordability and cautious about buying high, over half decided to wait. When asked if now is a good time for anyone to buy a home, 61% say it is not.
Among Gen-Xers, the WIO trend in home buying is even more prevalent. Among interested homebuyers, 74% say prices in their neighborhood are “too high”. Among this group, 63% are waiting it out for prices to correct. Interestingly and perhaps a factor, Gen-Xers expressed more familiarity with the last housing crisis, and are more cautious about a sequel. Overall, nearly 3 in 4 Gen-Xers (72%) believe another 2008-style housing crisis could happen again within their lifetime.
The latest data is not to be ignored because it translates to potential loss in housing transactions. Based on data above, as many as 38% of all interested millennial first-time homebuyers and 47% of Gen-X buyers could be waiting it out.
Latest home sales data echoes the market shift. Existing home sales have been trending down for over six consecutive months. In markets with the most aggressive price growth in recent years, correction alarms now appear to sound the loudest. San Diego home sales has reported a drop to the lowest level in 11 years, along with home price dips; in Seattle, which has given San Diego a run for its money for the nation’s hottest housing market in the past three years, now takes a different prize for fastest falling home prices in the country. So maybe our “WIO” homebuyers are in fact smart to wait.
What also intrigued ValueInsured’s researchers is some homebuyers’ fixed mindset about home prices versus mortgage rates. While homebuyers know it is more advantageous to buy sooner before rates move up, they assume even if they wait to buy at a higher rate, it could potentially be reversed down in the future, thanks to their familiarity with lower mortgage-rate refinance. In contrast, such perceived fluidity is not granted for home prices. 67% Americans believe when you buy high and your home value corrects later, that money is “lost”, and there is nothing a homeowner could do except, again, to wait it out for value to recover, even if it means staying in a home they have outgrown or wish to sell.