Selected findings:
- Almost two-thirds of potential homebuyers have slowed or halted their efforts to purchase a home after recent interest rate hikes
- 76% of buyers who would need to sell their current home say that they’re reluctant to sell in today’s market because they prefer to keep their current rates
- 86% of all respondents who have slowed or stopped their home search since last year cited high interest rates as the reason why
There are few factors as relevant to most homebuyers today than interest rates. Especially after recent economic events that drove the prices of US real estate to all-time highs, a small uptick in rates can make a huge difference in affordability. Interest rate hikes make borrowing more expensive, and reduce purchasing power-which we’ve seen contribute to a real estate market cool-down on home values from market to market in the past 6-12 months.
Flyhomes asked a series of questions to homebuyers of different demographics; in age, income–including low to high earners, and also urban setting–suburban (57%), rural (13%), and urban residents (30%), to get a full picture of what’s behind the behavioral shift in homebuyers in the US housing market. We also included a mix of both first time homebuyers (59%), and current homeowners (41%).
A COOLING MARKET
Less than a quarter (22%) of surveyed potential homebuyers that were looking to purchase before recent interest rate hikes are still actively searching for a home to purchase, according to a January 2023 survey conducted by Flyhomes of roughly 600 potential homebuyers who intend to purchase a home in the next three years.
Particularly in buyers who also need to sell-we found that those homeowners are sitting out the current market conditions, with 59% of those surveyed saying that they regret not taking advantage of high selling prices in early 2022, and 38% of those surveyed showing that they have slowed/paused their home search, citing not wanting to give up their current interest rate as one of the reasons why.
The downstream effects of this are that, on the buyer side, 23% of those surveyed said that they’ve ceased or slowed their home search, specifically due to a lack of selection/inventory. Specifically in the Northeast US, where buyers were 25% more likely than average to cite lack of inventory.
While interest rates are the leading cause of buyers staying sidelined in the current market-another big reason is fear of an impending layoff. We found that almost a quarter (24%) of surveyed buyers cited layoffs, and the environment of economic uncertainty it creates for them, as a major reason why they aren’t buying.
Another insight we learned in our findings is that the price reductions aren’t necessarily changing people’s minds about jumping in the market or not. Nearly half (42%) of our respondents said the approximate listing prices of homes they’re considering has decreased over the past twelve months – by 13% on average. This average increased by five percentage points for respondents in rural areas.
PURCHASING POWER TAKING A HIT
With inflation, the prices of virtually all goods skyrocketing, and interest rates-buyers are seeing their purchasing power take a major hit. Of those surveyed, 42% of buyers who’ve stopped their home search due to high interest rates, said that they were concerned about the resulting decrease in their home purchase power.
The vast majority (82%) of buyers reported that they’ve been locked out of at least one major home preference this year, whether it be what neighborhood they prefer, features they want, or square footage. 41% of buyers reported as being priced out of their desired neighborhood, specifically.
More than half (57%) of buyers are being priced out their type of home (i.e. single family vs condo) within the last year – an even bigger dealbreaker. 74% of that group report they would rather wait current market conditions out, than consider a different type of home.
WHY AREN’T BUYERS BUYERS NOW, AND REFI’ING LATER?
Refinancing a home loan is a common practice, especially when rates are low. Depending on the type of refinancing, people usually use this option to save money on mortgage rates, or even access the equity they have tied up in their homes as cash or a credit line.
In our study, 72% of surveyed homebuyers reported that they believe rates will eventually go down. The barrier, we found, between many buyers and purchasing their home in current market conditions, is the lack of knowledge as it relates to what refinancing means, and how much it costs-especially first time home buyers, who were 111% more likely than current homeowners to say they aren’t confident they understand the home refinancing process.
Additionally, buyers are concerned about the cost of refinancing, with 2/3 (67%) of all respondents reporting that they worry that if they buy now, the cost of refinancing will be an obstacle when interest rates fall again. We found that this was a major factor holding buyers back. Of those who have slowed or stopped their home search due to high interest rates, 45% of buyers agreed that they’re worried about being locked into a rate they can’t afford long-term.
When we asked buyers if they would purchase a home if they knew they could refinance to a lower interest rate later, without paying additional closing costs and/or penalties, 67% responded that they would be likely to buy a home within the next year. In some cases, even sooner; with 39% of buyers reporting that they would be more likely to purchase a home in the next 6 months, and 29% reporting that they would be more likely to buy in the next 3 months.
Written by Zach Boughaffour
