How the Real Estate Market is Changing

“We are in a healthier market,” said Deputy Chief Economist and VP of Research for the National Association of Realtors® Dr. Jessica Lautz. Lautz joined PAR President Christopher Beadling for a webinar on current housing demographics, discussing the changing market and how NAR is tracking housing statistics for members.

One of the biggest foreshadowing of future buying data is foot traffic, said Lautz. “Where are people actually going into homes? Has it declined or has it gone up? Is this going to increase existing home sales moving forward? NAR’s monthly Foot Traffic report is a leading indicator of the number of people going into homes.” During the depths of the COVID-19 pandemic, Lautz said these numbers were skewed thanks to fewer people going into homes or inspectors or appraisers not going in, but sales were not declining. However, this data is typically accurate for the future home sales report.

“Unfortunately, foot traffic has been going down in recent months. It has to do with housing affordability. While we have been below 7% nationally again for mortgage rates, it still adds $1,000 more per month to a mortgage payment compared to a year ago. Buyers are being priced out and sellers don’t want to list with mortgage rates so high,” she said.

Despite slowing foot traffic, Realtors® report that about a quarter of homes on the market are still receiving more than their listing price, according to NAR’s Realtor® Confidence Index Survey. “It’s a changing marketplace. It has shifted dramatically since the spring, when we had a peak of 5.5 offers per property on average. We are seeing 2.4 offers on every home on average now,” said Lautz. And about 25% of the offers are entirely cash purchases.

Pre-pandemic, many baby boomers who were listing their lifelong homes hadn’t updated the property in years. However, with people stuck at home, many got into remodeling. Lautz said kitchens and bathrooms remain the most popular remodel according to NAR’s 2022 Remodeling Impact Report, but there are lower-cost projects that can recoup large amounts. For example, remodeling hardwood floors offers a 147% return on investment. Additionally, good installation is a project she said she considers overlooked, but is valued by buyers.

During COVID, Lautz said many people took advantage of new-to-them remote work policies and relocated, most often from a larger city to a smaller area, usually citing quality of life and neighborhood and affordability, she said. Many people moved to be closer to friends and family and there was a decline in the importance of work commute times for a majority of buyers. “Our research shows a massive shift in the distance between the homes purchased and the previous residence from about 15 miles to a median of 50 miles,” she said.

However, first-time buyers are still struggling to enter the market. Only 26% of homebuyers were first-time and the age is at an all-time high at 36 years, as people have to save longer, according to NAR’s 2022 Profile of Home Buyers and Sellers. “There are forces inside the housing market like affordability and low inventory. A rise in rents is also impacting would-be homebuyers,” said Lautz. Additionally, student loan debt continues to be an obstacle for first-time buyers, though the pause in repayments throughout the pandemic did allow around one-third of potential homebuyers to cut down on debt.

Beadling said he was stunned when he saw a chart showing the number of millennials entering the homebuying stage over the next several years. Lautz said that the Millennials are the largest generation in the country and those in their late 20s to early 30s are in the peak time of wanting to become homeowners. “The larger population, lack of housing and increasing unaffordability are all increasing the problem of achieving homeownership,” she added. “We don’t have enough housing inventory. The U.S. has been underbuilding for 15 years, although housing starts went up last year.” She added that the types of larger homes being built aren’t meeting the needs of more single buyers on the market today.

“There has also been a rise in white homebuyers and a continual decline in Black homebuyers. It speaks to the difficulty entering the market. Black renters are spending a disproportionate amount of rent compared to  their white counterpart,” added Lautz, noting that generational wealth is an advantage for those looking to enter the housing market. Last year, NAR published three reports looking at race and homebuying trends.