Economic Concerns Melt Away For Home-Buyers, Rising Prices Seen As More Certain

For the latest Redfin Real-Time Home-Buyer Tracker, we surveyed more than 1,000 active home-buyers who have recently toured homes with Redfin, in order to get their pulse on the market. The strongest messages they shared with us were a continued frustration with low inventory and a growing certainty that home prices in their areas are now on the rise.

Home-buyers surveyed by Redfin are:

• More confident in rising prices: Seventy-one percent of buyers who responded to our survey now believe that home prices will increase in their neighborhood in the next twelve months, up from 61% last quarter and more than double the 34% who expected rising prices in our first quarter survey.
• Now more concerned by rising prices than the economy: Thirty-three percent of buyers listed rising prices as a major concern in the fourth quarter, up from just 23% in the third quarter. Meanwhile, 22% said they were concerned with a weak economy, down from 27% in the third quarter.
• Less driven by low rates: While low interest rates was still the top response (57%) when we asked buyers why they plan to buy now, the response was down seven percentage points from last quarter and sixteen percentage points from the first quarter.
• Still flummoxed by low inventory: Fifty-nine percent of buyers listed low inventory as their top concern with buying now, consistent with last quarter’s rate.

In the nine months between the first quarter survey and the fourth quarter survey, the percentage of buyers who were also potential home sellers roughly doubled, from 8 percent to 16 percent; after years of rising, the percentage of first-time home-buyers actually decreased from 48 percent to 37 percent. We expect 2013 to be the year of the move-up buyer, which bodes well for inventory improvements next year. Over that same time, buyers who believe prices will rise over the next 12 months has gone from one in three (34 percent), a minority, to an overwhelming majority, nearly 3 in 4 (71 percent); the number that considered delaying a purchase to see if prices dropped further declined from nearly 1 in 3 (29 percent) to one in 20.

We also learned this quarter that most homebuyers are not very concerned about the Fiscal Cliff and possible changes to the Mortgage Interest Deduction. Although the possible consequences of some of the proposed changes may be large for certain people, only about 5 percent of buyers are seriously concerned and only 23 percent are being more cautious in their home search while they wait to see how things pan out. You can find coverage of these responses in this post from Glenn.

About the Survey

From November 30 to December 2, 2012, we surveyed 1,084 active homebuyers who had toured a home with a Redfin agent since August 14.

Respondents came from across 18 metropolitan markets in the U.S.: Atlanta, Austin, Baltimore, Boston, Chicago, Dallas, Denver, Los Angeles, New York, Orange County, Phoenix, Portland, Riverside / San Bernardino, Sacramento, San Diego, San Francisco, Seattle, and Washington DC.

Data and charts are below. If you’d like the data segmented by market or by other customer demographics, please contact press (at) redfin (dot) com. If there are questions you’d like us to include in the survey next time, please just leave a comment below.

The Q4 2012 Redfin Real-Time Home-Buyer Survey

More Than 70% of All Buyers Now Believe Prices Will Rise

The number of buyers who believe prices are rising shot up even higher in the fourth quarter, although most still expect gains to be modest. Ten percent of respondents expect home prices in their area to “rise a lot” over the next twelve months, the same as last quarter; 61% expect prices to “rise a little” an increase of ten percentage points over last quarter. Twenty-one percent expect prices to “stay the same,” 6 percent expect prices to “drop a little,” and less than 1 percent expect prices to “drop a lot.” Click here for the full breakdown of all answers.

Low Interest Rates Losing Their Effect

With interest rates having been so low for so long, the effect of low interest rates is beginning to drop off. That said, low rates was still the most frequently-cited reason that buyers are planning to buy a home this year, with 57 percent of respondents selecting that reason, compared to 64% last quarter. The next-closest category was still a life event, which was selected by just 38 percent of respondents.

A growing number of buyers are planning to buy in order to get out in front of rising prices. Thirty-three percent of respondents indicated rising prices as a motivation for buying now, up from 29 percent in the third quarter and just 19 percent in the first quarter. Not surprisingly, a decreasing number of buyers cited “low home prices” as their reason for buying—just 28 percent in this quarter’s survey, down from 33 percent in the third quarter and 40 percent in the first quarter. Click here for the full breakdown of all answers.

Low Inventory Continues to Frustrate Buyers, Rising Prices a Growing Concern

When asked about your “major concerns with buying a home this year,” the most common response was yet again “not enough good homes for sale” at 59 percent, the same as in the third quarter. “General economic concerns” fell off this quarter, losing the second spot to “Prices are increasing in my area,” which shot up ten percentage points from 23 percent in the third quarter to 33 percent in the fourth quarter. Click here for the full breakdown of all answers.

Repeat Buyers Move Up

For homebuyers who are not first-timers, we asked if they’re planning to buy a home that is bigger, smaller, or the same size as their current home. The most common response was “much bigger,” at 49%. Only 9.6% intend to buy a home that is much smaller, while the remaining 41% are planning to buy a home that’s the same size but is nicer, more affordable, or in a different location.

Low Inventory Forcing Expanded Searches, Many Buyers Take a Break

When we asked buyers how low inventory was affecting their home search, nearly half (46%) indicated that they have expanded their search to include new areas that they hadn’t previously been considering, while 38% indicated that they would be taking a break until more listings come on the market.

Over the last year, the most salient trends in homebuyer sentiment have been an increasing faith in the fact that home prices are on the rise and subsequently, a growing concern about those very rising prices. Low inventory has remained a constant source of frustration among homebuyers for nearly all of 2012. Meanwhile, the welfare of the economy has become a less important factor in the home-buying process. These sentiments point toward an increasingly confident pool of American homebuyers. As a result, Redfin expects the 2013 home-buying season to kick off early in January with renewed demand. Unless inventory jumps significantly, this will likely lead to continued modest price gains in most areas into the spring.