Home buyer demographics change slightly from year to year due to macroeconomic forces from the health of the economy to inflation to the global trade on oil prices. The National Association of REALTORS® recently released its 2016 Profile of Home Buyers and Sellers report and the trend of purchasing up in home size has continued again this year.
First, in all regions of the country, the desire to own a home of one’s own continues to dominate as the top reason for purchasing a home, almost three times as much as any other reason to purchase. Nationally, the desire to purchase one’s own home was 31 percent of all buyers, followed by the desire for a larger home (10 percent), a job-related relocation or move (eight percent), and a change in family situation (eight percent). For first-time buyers, the desire to purchase one’s own home was 67 percent.
In five out of nine regions in the United States, buyers continued to trade up and buy bigger homes than last year. According to the 2016 report, 46 percent of all buyers traded up in the size of their home, up from 42 percent in 2015. In the 2015 report, buyers reported that they were looking for homes similar in size at 29 percent compared to 26 percent in 2016.
The top regions that continued to trade up in size were New England, East North Central, South Atlantic, Mountain, and Pacific. Interestingly, share of buyers that traded up in size in West North Central last year, in contrast, went back down to six percent in 2016 (similar to 2014) from 13 percent in 2015. The regions with the share of buyers that traded up in 2015 but fell slightly in 2016 include the Middle Atlantic, East South Central, and West South Central.
While these regions where the share may have dropped a few percentage points, the desire for a larger home was still the second most frequently cited reason in almost every region. The only exceptions were in the West North Central that cited the desire to be closer to family, and the West South Central that cited a job relocation as the second most common reason to purchase a home.
One reason for this shift in purchasing power is that people have more equity from selling their previous homes in order to buy a bigger one. Since the housing downturn in 2010, many homes were worth less than their mortgages. Over the last several years, home prices have been rising. In 2014, 17 percent reported waiting or stalling to sell their home, which dropped to 13 percent in 2015 and again to 12 percent in 2016. Sellers also reported that they sold their homes for a median of $43,100 more than they purchased it, up from $40,000 in 2015 and $30,100 in 2014. The most common reason for selling a home in 2016 was that the home was too small at 18 percent, up from 16 percent in 2015.
The typical seller in 2016 was 54 years old (same as the last two years) and the median household income in 2015 was $100,700, down from $104,000 in 2014. Sellers aged 35 to 44 years were the largest age group to sell homes last year at 22 percent. We can speculate that the sellers probably had a child in the last few years and wanted a bigger home to expand their family. We also see the trend where repeat buyers have been able to sell their homes at a higher price in order to trade up and purchase larger homes. Sellers aged 55 to 64 also made up 22 percent of all sellers, possibly looking to downsize to a smaller home as they near retirement.