The strength in the housing market today is driven by nearly every buyer type, which allows for different products, price points, and geographies to thrive. Each of these buyer groups share five main motivations for buying a home today, including taking advantage of rising prices, locking in a mortgage with historically low-interest rates, the increased savings throughout 2020 and early 2021, the pandemic-induced lifestyle changes, and the intangible psychological effect of "fear of missing out." Each buyer group, however, also has its own unique set of motivations and risks that are important to understand when trying to forecast housing growth.
First-Time Buyers: First-time buyers include individuals of any age but are largely comprised of millennials, those between 21 and 41 years old. The full extent of the cohort took years to be realized after the Great Recession, but millennials are not only the largest living generation but also today’s top home buyer. This cohort is not exclusively buying entry-level product, though. Some millennials waited until later in life to purchase their first home for lifestyle or financial reasons, resulting in their first home looking more like a move-up property. The increased savings throughout 2020 was among the most impactful for first-time buyers. The cohort cites affordability and the inability to come up with a down payment as the No. 1 reason they do not already own a home.
Move-Up Buyers: When the housing market slowed in March and April of last year, many were quick to remember the price drops of the Great Recession. There was a collective sigh of relief when it became apparent that the housing market was actually bucking the unemployment and uncertainty trends and started to grow again in late April and May, led by move-up buyers. Move-up buyers span different generations but are generally associated with Generation X, those between 41 and 61 years old. Move-up buyers benefit greatly as home prices increase, especially if they’ve paid down a good amount of their existing mortgage.
Luxury Buyers: The luxury market means different price points in different markets, but the buyers’ needs are often the same. They are looking for quality space with some special features. Discretionary and often selective, luxury buyers are active in today’s housing market fueled by many of the same drivers as move-up buyers, including more time spent at home and increased wealth. Moving to lower-taxed states also has become increasingly popular as there is more flexibility around where we live
Retirees/55+: The retiree/55+ buyer is at a unique time in life where their lifestyle likely has either changed or they are planning for a change. Planned retirement, forced retirement, early retirement, chasing grandchildren, or just simply looking for a larger or smaller home are all reasons why this buyer group is shopping.
Investors: Investors were a staple of the housing market during the mid-2000s housing boom. Both mom-and-pop and institutional investors scooped up many of the foreclosed homes in the wake of the heyday, but some were left scarred from the boom-bust cycle. Fast-forward and the changes brought on by COVID-19 supported renewed interest in purchasing an investment property. Some investors are seeking rental income, and the tenant pool for single-family dwellings is heightened as people look for larger homes and more private space. Other investors are incentivized by rising home prices, for which there is no shortage today.
Second-Home Buyers: 2020 was the year of the staycation, including a search for a "home away from home." Not everyone was in a financial position to buy a second home, but for those who were, the lifestyle changes brought on by the pandemic fueled demand.
Relocation Buyers: 2020 enabled freedom for where we live unlike any time in history. People of all ages were moving for myriad reasons, whether it was to return to their hometown, move to a city they’ve always wanted to live in, or find a place where they could live with some bang for their buck. For millennials, in particular, the aforementioned survey showed the No. 1 reason the cohort said they were considering moving out of their current town was “I’m looking for more affordable housing.” Some other reasons include the desire for a home with a bigger yard and looking for a change and better employment opportunities—tied for No. 3.