Are 1 in 3 homebuyers in America now buying blind?

We admit it, this headline may be a bit sensational; but if you consider the latest homebuyer reports, it may not be that far-fetched after all. 

In 2017, 35% of all homebuyers made an offer on a home sight unseen, according to a Redfin report. The fear of missing out in some hot housing markets seem to have turned more otherwise rational, responsible Americans into risky homebuyers. Throw in sales contracts that also waive home inspections in order to win bidding wars, then yes, in essence, a sizeable number of desperate homebuyers have now been reduced to pretty much buying blind.

But that’s not the whole story. The latest ValueInsured Modern Homebuyer Survey revealed that some homebuyers are also planning a purchase without having basic understanding of new tax laws, interest rate trends and how home value in the areas where they are shopping could potentially be affected.

Among all homebuyers who are actively pursuing a home purchase “in the near future”, 40% admit to not knowing enough about the new tax laws and how the laws would affect future home value in the area they plan to buy. This figure is higher among interested homebuyers in rural and suburban areas, at 43%.

In some of the nations’ hottest markets where home prices fell double digits after the last housing peak and where some are reporting signs of an impending slowdown, over 1 in 3 interested homebuyers have not considered how new tax laws could affect home value after they buy. This is significant when stakes have become higher in some of these markets, where median home prices have exceeded $750,000, the new loan ceiling for mortgage interest deduction. According to ValueInsured’s separate local surveys in the following designated markets:

  • In Denver, 37% of all interested homebuyers reported they do not understand the new tax laws and how they could affect future home value.
  • In Atlanta, 39% admitted the same.
  • In red hot Seattle where above-mentioned home inspection waivers and sight-unseen offers are now rampant, 43% of all homebuyers including 48% of all millennial homebuyers admitted to not understanding the new tax laws.

In the same surveys, homebuyers also reported to not being aware of how rising interest rates could temper with the housing market or home value in the area they plan to buy:

Are 1 in 3 Americans buying blind?

  • 1 in 3 (33%) of all homebuyers admitted they do not know rising interest rates could have an effect on the housing market or home value.
  • 31% of all interested homebuyers in Denver, 26% in Atlanta and 32% in Seattle admitted the same.

What perhaps stands out the most is that nearly 4 in 10 of all homebuyers – and nearly half in some hot, already overvalued, housing markets – do not even anticipate any interest rate hikes by the Federal Reserve this year:

  • When ValueInsured’s survey was conducted in February 2018, 38% of all homebuyers including 40% of all millennial homebuyers believe there will not be any more interest rate hikes by the Fed in 2018.
  • 43% in Denver who plan to buy “in the near future” and 40% in Atlanta do not anticipate a Fed rate hike this year.
  • In Seattle, 48% of all homebuyers and 49% millennial homebuyers believe the same.

This is alarming because a good chunk of homebuyers appear to be operating on uninformed or inaccurate basic market knowledge. It was widely reported back in 2017 that the Fed planned more rate hikes in 2018. In fact, a month after the above consumer sentiments were gathered, the Fed raised interest rate, and planned for three to four rate hikes total in 2018.

Ultimately, no one can accurately predict the housing market. However, increasingly, more homebuyer protections and market knowledge are now available in this information-rich and innovative housing era. When some homebuyers are still following a herd mentality to buy and waiving experts’ advice – whether it’s an inspector’s report, CoreLogic’s overvalued reports or economists’ interest rate forecasts – some may just be making important purchases as if they were buying blind.