Home sales buoyed by repeat buyers
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Tyl Pattisall’s timing couldn’t have been better. She and her husband bought a condominium in San Francisco three years ago when the market was depressed and sold it for a profit in June. Now she’s looking to buy again.
“We were very lucky to have bought when we did and to sell when we did,” said Pattisall, 38. “We’re lucky that we got out of our San Francisco place having done moderately well.”
Pattisall is an example of a growing share of repeat purchasers driving the U.S. housing recovery, as appreciating property values and low mortgage rates give many the wherewithal to relocate. The same forces are also benefitting longer-term homeowners who had wanted to move and didn’t want to sell until prices improved.
Homeowners returning to the market accounted for 54 percent of sales of existing properties in June, up from 49 percent a year earlier, according to data from the National Association of Realtors. First-time buyers were 29 percent, a decline of 3 percentage points in the past year and compared with a typical share of 40 percent amid strict lending conditions and a lack of lower-priced properties.
Repeat buyers will remain a crucial element of the real- estate rebound until a better-heeled economy also opens the way for more first-timers to rejoin the market.
“What we’re seeing are these buyers who’ve waited around and who have finally realized - this is a good time to move,” said David Crowe, chief economist for the National Association of Home Builders in Washington. “They will feed the demand until our economy gets a little more solid.”
Homeowners like Pattisall are getting the upper hand as climbing home prices boost household wealth, facilitating purchases of bigger properties or lowering the amount of financing needed for other comparable dwellings.
The S&P/Case Shiller index of home prices in 20 U.S. cities has been increasing on a month over month basis since February 2012. It was up 16.5 percent in May from a more than 10-year low reached in March 2012. It is still 24.4 percent below the record reached at the peak of the housing boom in July 2006.
“If they have built up equity in their homes, in the last year of so, home values have risen much more than the value of lots of other investments,” said Jed Kolko, chief economist at real estate website Trulia Inc. in San Francisco. “That helps them put down a larger down-payment or not need a mortgage in the first place.”
Confidence that residential property values will continue to climb is also playing a role in convincing would-be repeat buyers to take the plunge. The share of respondents who projected home prices will rise in the next 12 months was 53 percent in July, close to a three-year high, according to results of a survey by Fannie Mae.
“The economy looks to be on a sounder footing, home prices are rising, and expectations are that they’ll continue to increase,” said Michelle Meyer, a senior economist at Bank of America Corp. in New York. “Not only would they be able to sell their current property, but also in terms of purchasing their larger home, they’ll feel that their homes will appreciate with time.”
As growth in the U.S. is sustained, global markets are starting to stabilize. China’s industrial output rose more than projected in July, while in the U.K., exports rose to a record in the second quarter, according to a pair of reports today.
In Rancho Santa Fe, Calif., increasing buyer confidence has helped K. Ann Brizolis’s luxury home real estate business to “crawl back” from the bust.
Now that homeowners can sell their current residences at less of a loss or at a gain, more are able to move up to the $2 million to $3 million average price point of homes Brizolis sells. “It’s sort of a trickle-up environment.”
Buyers who already own houses may also have an easier time acquiring financing, said David Berson, chief economist for Nationwide Insurance in Columbus, Ohio. They have “much deeper and richer” credit histories. It’s also less likely that they’ll need loans to start with, Kolko said.
In 2012, 81 percent of repeat buyers financed their home purchases, compared with 96 percent of first-time buyers, according to an NAR profile of buyers and sellers.
That’s giving them an advantage in situations when they are bidding against first-time buyers. What’s more, some appraisals aren’t keeping pace with the higher asking prices, making it difficult for buyers with smaller down payments to get financing, according to NAR chief economist Lawrence Yun.
“We are seeing a decent amount of first-time home buyers, and unfortunately for those people, the competition in the market for cheap houses is crazy,” said Jennifer Ames, who has worked as a real estate agent in Chicago for 19 years. She said one client wrote five contracts before winning a bid.
Returning buyers may also benefit from a greater selection of properties from which to choose. First-time buyers of existing homes are held back by “very limited inventory in the lower price ranges in most of the U.S.,” Yun said in a statement last month. A June inventory shortage of existing units was particularly acute for homes valued at less than $100,000, he said.
To be sure, the housing rebound cannot be sustained without first-time buyers, said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.
“You can’t sell your house and move to a bigger one if you can’t find someone to sell your house to in the first place, and often that person is a first-time homebuyer,” said Hoffman. “First-time homebuyers are still a very important part of the market.”
Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said the fact that first-time buyers are a smaller share of sales isn’t a major concern for now, since inventories are too low to accommodate demand as is. As the job market improves, young people who now lack the financial security to buy a home will re-enter the market, he said.
“We simply need to see the employment conditions mature,” he said, predicting that more first-time buyers will enter the market next year, and the share will increase even more the following year, helping to keep up the speed of the housing recovery. “We’re at a pace right now that can be maintained for the intermediate term, I think it’s a healthy pace.”
After finding a buyer for her former home in less than three weeks, Pattisall is now looking for a larger house in the Boston area after her husband landed a new job closer to their families.
“We’ve done the city thing,” she said. “We’re ready to have a yard.”