BLOG VIEW: The effects of COVID-19 have touched virtually every area of life, and all eyes have been fixed on the economy to see how it all plays out. This pandemic has brought disruption to the housing market and left Realtors, builders, mortgage lenders and economists wondering what will drive the housing market after this crisis is over?
If the recent trend is any indicator, we can expect to see second-time homebuyers driving a more significant share of home sales once the crisis has passed.
Over the last few years, growth in the housing market came almost exclusively from first-time homebuyers, with the second-time homebuyer market remaining relatively flat. However, in the fourth quarter of 2019, this trend started to shift: Repeat buyer transactions grew 2% to more than 3.4 million.
Second-Time Homebuyers On The Move
Why do we believe that second-time homebuyers are on the move when that segment has been flat since 2013? Just take a look at first-time homebuyers. Starting in 2014 and 2015, the market saw an increase in first-time homebuyers. Any real estate agent will tell you that homeowners generally buy every five to 10 years. That also applies to first-time homebuyers. Five to ten years after buying homes for the first time, many are facing changed housing needs. As we approach the five-year mark following that increase, we find that the pool of potential second-time homebuyers has stabilized, and may grow over the next few years.
If these potential second-time homebuyers do indeed decide to move, that would mean a shift in the growth driver in the housing market to second-time homebuyers over the next few years. The second-time homebuyer segment grew over the past few quarters, while growth in the first-time homebuyer segment slowed.
What Does This Mean for the Market?
So why should the industry care about this trend? Whether you are a lender, real estate agent or homebuilder, you want to ensure your business is positioned to support the right product mix for the market. Additionally, we know that second-time homebuyers have needs that are different from first-time homebuyers.
What follows are a few of the ways that industry professionals can prepare to best serve second-time homebuyers:
- Second-time homebuyers have more experience, as they have already bought and owned a home and are more likely to know what they want and how the home-buying process works. On one hand, that could mean less handholding from Realtors, lenders, and homebuilders on simple tasks, making these homebuyers more self-reliant. On the other hand, they will likely be savvier, more price-conscious, and demand a higher level of value-add.
- Builders also should consider how to best manage and serve buyers looking to upgrade. On average, potential second-time homebuyers have a bigger budget, and they know what they did not like in their last home. Putting an emphasis on “move-up” homes will help to ensure they are able to provide the right type of inventory for this group. This in no way means they should stop building affordable homes for first-time homebuyers, but an additional focus on “move-up” homes can help builders serve both first-time and second-time homebuyers.
Overall, potential growth among second-time homebuyers may mean more liquidity in the market, meaning more available inventory as first-time homebuyers move out of their homes.
It should be noted that although second-time homebuyers saw growth in 2019, this does not necessarily mean that first-time homebuyers are on the decline. First-time homebuyers will continue to be a critical segment in the housing market. What’s important for lenders, Realtors and builders to realize is that many of the first-time homebuyers who purchased five to 10 years ago are now likely to drive growth as repeat buyers.
Simply put, it’s important for industry participants to understand each segment and prepare accordingly.
Tian Liu is chief economist for Genworth Mortgage Insurance Corp.