The business of real estate is interesting because it affects all of our lives in one way or another. You might have no interest in business, hate dealing with finances, and avoid negotiating at all costs – yet you can’t help but be involved with real estate in some fashion. No matter where you live across the country, real estate transactions are shaping your life. For many people, the purchase of a home is the single most significant investment they will make in their entire lives. Even if you never own a home, the rent you pay is directly tied to the real estate market as it moves up and down.
Knowing how important real estate is in our financial lives, it is interesting to look at the demographics and statistics that relate the buying and selling transactions that occur each day. There are certain groups of people that tend to be more active in the real estate market than others, yet there are exceptions to every rule. Whether you are considering soon becoming a buyer or seller in the real estate market, or just have an interest in the topic, take a look at the statistics to follow in this article and you will have a little better picture of the market as a whole.
#1: Home Owners Save 45%
There has been a small group of ‘experts’ lately promoting the thinking that purchasing a home is no longer the investment it was fifty years ago. While the market is always fluctuating, buying a home is still a great way to use your money to your advantage. In fact, three out of every four American homeowners still say that the home they own is the biggest source of wealth they possess. Home values throughout the history of this country have always exceeded inflation and been a sound investment over an extended period of time – and there is no reason to think that will not continue to hold true.
Because it remains such a smart investment, most adult Americans count themselves as homeowners.
- At the last census, over 65% indicated that they owned a home; a number which has remained very steady while growing slightly over the last five decades.
It is easy to see why so many people continue to choose ownership when they have the opportunity – recent research indicates that buying a home will be 45% cheaper than renting over the time that the owner occupies their home.
#2: Mainstream Media Takes a Backseat
Each year, billions and billions of dollars are spent in advertising through the traditional ‘mainstream media’ outlets. This includes things like television, newspapers, billboards, radio, and more. We are all subjected to advertisements from these channels on an ongoing basis, and it is very effective for some industries. Automobiles and fast food restaurants, for example, are famous for blasting their message through these major avenues.
When it comes to the buying and selling of homes, however, those advertising methods play a minimal role. The reasons are pretty easy to understand. First, home buying is a very personal decision that can’t be done in bulk. What will appeal to one person will not appeal to another, so the mass-advertising approach is ineffective. Real estate is a referral business, and getting a word of mouth endorsement is worth far more to a real estate agent than any television commercial could ever be. Also, the cost of advertising on those mainstream outlets would not make sense for home sales. The few commission points that an agent gets for each sale are not large enough to make that kind of advertising appropriate. Rather, agents stick to internet advertising and word of mouth to attract clients and close deals.
#3: The Changing Profile of First-time Buyers
In many ways, the lifeblood of the housing market is first-time home buyers. If you think about it, repeat buyers don’t have that great of an effect because they are simply selling one home to buy another. If all the market consisted of was repeat buyers, there would just be a lot of swapping properties and no real value being created. However, when a first-time buyer comes into the market, the market gets bigger and demand is pushed upward.
Considering that, it is interesting to look at exactly who these first-time buyers are in today’s market. To start, let’s paint the picture of the average first-time buyer:
- they are 31 years old, have an average income of just over $60,000, and purchase a home that is around 1,600 square feet with an average price of slightly more than $150,000.
The first thing to notice from those stats is that the average age is now north of 30. Had we looked at these statistics a few decades ago, that number would surely have been much lower. Since many people wait to buy a home until they are married, the average marriage age getting older has likely pushed the home buying age higher as well. Also, most high school graduates go to four years of college today, where in the 1950’s and 60’s many of them would have gone right into the workforce at 18 or 19 years old.
Unsurprisingly, 93% of first-time buyers use a fixed-rate mortgage to buy their property. A fixed-rate mortgage is the most popular type of loan, and very few first time buyers have the finances to pay cash for their purchase. Interestingly, only 6% of first-time buyers report having taken a loan for a relative or friend to help purchase the home. This would seem to indicate that most people are waiting to buy until they can comfortably handle the financial responsibility on their own.
#4: Hispanic Population Strongly Influencing Market
The Hispanic population within the United States has been steadily growing for decades, and that growth is easily seen within the real estate market. Even in just the last decade or so, the Hispanic population is starting to make more of an effect in the market and is purchasing more properties than ever before.
- There has been an increase of 693,000 owner households in the United States, and 51% of them are accounted for by Hispanics.
That means that Hispanics now own almost 350,000 more homes than they did a year ago – an incredible jump to be sure.
Almost as incredible is the increase in homeownership among Hispanics that live in America. During the last twelve years, the number of Hispanics living in the U.S. that own their own home has increased by a staggering 58%. For comparison, the rest of the U.S. population only saw their percentage of homeownership increase by 5%. There are expected to be an additional 12 to 14 million households created in the United States over the next decade, and Hispanics will own an estimated 40% of them.
#5: Market on the Mend
It is no secret that the second half of the decade of the 2000’s was not kind to the real estate market. An overall economic recession led to a severe downturn in the real estate market, the effects of which are still being felt. However, there are many signs indicating the worst is behind us. May of 2013 was the 14th consecutive month that saw the average sale price of a home increase on a national average.
- The average home sale price is back up to $208,400, well above where it was three or four years ago.
Back in February of 2013, there were less than 2 million properties for sale nationwide, representing the first less-than-normal supply level in years. Of those, only 15% were foreclosures and 10% short sales. All of these figures would indicate that the market is continuing to rebound and prices are very likely to continue trending upward for the foreseeable future.
Have you ever thought about what the greatest real estate deal in history might be? Perhaps the purchase of a mansion that was foreclosed and for sale at a great price? Maybe a home that was built on historical land only later to be discovered as highly valuable? How about a large purchase of undeveloped land?
If you guessed the last option, you would be correct – although it wasn’t purchased by a developer. Rather, the best real estate purchase in history was made by the third President of the United States, Thomas Jefferson. Jefferson make the Louisiana Purchase from France for a total cost of just $15 million. Considering the area included was some 828,000 square miles, which made the purchase price less than 3 cents per acre! Even when translated into modern currency, the cost of the Louisiana Purchase would be less than 42 cents per acre. Good luck finding any property for sale today for that price.
- 88% of homebuyer use a real estate agent when completing their transaction
- 65% of homebuyers are married couples, 16% are single women, and 9% are single men
- On average, sellers who use a real estate agent return $40,000 more on their sale than those who choose to sell the home on their own
The homeownership dream is alive and well, and so is the real estate market as a whole. Real estate has begun to regain its value lately, and all signs point to a continuation of that trend. For those who work in the business, the recovery of the market is a great relief and an opportunity to recover what may have been lost over the last few years. For homeowners, or prospective owners, the market is speeding up and is sure to be very competitive in the years to come.