In December, Redfin reported an uptick in mortgage-purchase applications and home-tour requests. The real-estate broker primarily attributed this increased homebuyer demand to a steady slight decline in home prices. Although the market still needs to stabilize in a variety of ways, we believe this change and historic norms suggest that we can expect higher demand this year than in the last two years of the pandemic. We also expect some groups to buy homes more than others. Read on to learn more.
Redfin found that home prices fell in 15 of the most populous metros, including Austin, Detroit, Los Angeles, Oakland, Pittsburgh, and Sacramento. Austin and Los Angeles experienced the biggest drops since before 2015, which is the cutoff point for Redfin’s data. Las Vegas and Riverside experienced price drops for the first time since then as well. All price drops were less than 10%, but it’s a positive sign that indicates the market is turning, perhaps ever so slightly. More sellers are trying to attract buyers in metropolitan areas with price breaks.
Plenty of first-time buyers have wanted homes over the last two years and couldn’t fulfill their dreams because of reduced inventory and steep prices. We don’t expect these consumers to wait much longer. Historically, first-time buyers who have the means tend to experience cabin fever when faced with delays. If they live in a colder region, they tend to follow general consumer trends and buy in spring and summer as soon as the weather breaks. We believe homebuyer demand from first-time buyers with good or better credit is inevitable, especially if purchase prices continue to drop.
Members of certain groups always need a new home because of temporary-to-permanent and permanent relocation requirements for a job. This is primarily seen with people in career positions, especially business professionals who need to move because of a new position or career advancement, and members of the military seeking to put down roots closer to their base of operations. Medical personnel are also relocating more than ever before. Although traveling nurses and doctors need accommodations, they primarily seek rental and hotel properties. That said, markets that contain clinics, major healthcare centers and hospital systems can expect more homebuyer demand from medium- and high-earning medical professionals.
Snowbirds and Other Retirees
An increase in homebuyer demand is guaranteed from homeowners close to retirement age and those who have already retired, especially in certain areas of the country. Some of these homeowners have waited to sell and downsize. We believe they have seen the writing on the wall and plan to sell within the next six months to try to acquire the most value before the market only favors buyers. Many Northeast retirees have historically become fed up with cold weather. We expect some of these homeowners to become part of the snowbird trend or relocate permanently to warmer zones. Lastly, we expect many investors of retirement age to take advantage of dropping prices to buy homes to convert into rental properties that can help them earn a semi-passive income to offset inflation and any future economic problems.