The decision to sell a house is not always an easy one. As you wait for the right buyer, you probably try to create an identikit picture of the future owners mentally. How old would they be? Will they have one or more kids? Will they bring in pets? And many questions like these could cross your mind. However, if you work with a real estate agent like 90% of home sellers did last year, he or she can tell you who is more likely to buy your house.
Understanding market segmentation and each buyer’s profile could help you and your agent better market the property. But the information below is the ace on the sleeve for real estate investors, too. Large scale projects always start with the consumers in mind. A buyer profile is well known before the first line of the blueprints is drawn.
Home buying behavior in the US
Every year, the National Association of Realtors® provides current numbers that reflect the patterns we can expect to see in the housing market. What do we know so far? Out of all real estate transactions in 2018, 33% were concluded by first time home buyers with a median age of 46 years. The overall median household income of home buyers was $91,600 and chose to finance 88% of the home’s value on average. Why did they buy a house? To have a place for their own, a place to call home – a third of home buyers have had this motivation. Only 7% of homes were FSBO (for sale by owner) and the median age of home sellers was 55.
Every generation has its own priorities. When buying a property, the goal is generally the same: to spend the next years in a dream house. Many factors influence buying decisions, but the age of the buyer’s does count a lot. In our 30s we think completely different than in our 20s. After retirement, our needs change, and we might consider downsizing right after our kids settle down. In this article we will examine the following five generations:
- Generation Z – 2000 to present (19 years old and younger)
- Millennials/Generation Y – born between 1980-2000 (between 20 and 40 years old)
- Generation X – 1965 – 1979 (between 40 and 54 years old)
- Baby Boomers – 1946 – 1964 (up to 73 years old)
- Silent Generation – 1925 – 1945 (up to 94 years old)
We will start with Generation Y because it is the most researched group in marketing. It seems that most businesses have huge expectations from young adults who start to earn their first salary or commissions.
Millennial home buying trends
Whether you are a real estate investor or a first-time home seller, you must keep an eye on Millennial real estate trends. According to Statista, the vast majority of first-time home buyers in the United States were under 37 years old in 2017. Nowadays, millennials are more educated, tech-savvy, and frugal. So, millennials will definitely use technology to buy the house of their dreams. The Internet is their best friend when looking to understand real estate terms, or when they are looking for a real estate agent. Even The Official Real Estate Agent Directory® is designed to serve the new generations of home buyers.
Millennials also tend to ask for opinions and advice from family and friends more often. Why? Because they also plan to stay longer in their first house. They are more likely to purchase fixer-uppers, buildings that need repair and remodel. Generation Y tends to buy older and smaller homes at a low price. 60% chose single-family detached properties while 9% settled for a multifamily property.
Due to student loan debt, millennials have a hard time saving for their down payment, so this means they don’t hurry. The fact that they postpone major events in their lives – like getting married and having a baby – increases the age of first time home buyers in the US. They are patient and cautious. In the meantime, they dig for information online in order to make an informed decision they will not regret later. The devices they use more often are desktops, smartphones, and TVs. BUT they tend to hate ads. Once an ad-blocking software is installed, it will be harder to reach this generation. If you want to reach Generation Y, invest in social media and work with a digital marketing company!
As one would expect, millennials look for starter homes – homes they can afford with a combination of savings and mortgage. Those homes range in price between $150,000 and $250,000. But, according to NAR, 30% of millennials chose houses $300,000 and over. About 50% of millennials buy in the suburbs, but they don’t mind to share amenities either, so they are open to buying in newer complexes or gated communities. Reviews are very important for them and count a lot during their decision-making process.
According to SmartAsset, In New York, Los Angeles, San Francisco and Washington, D.C., young adults could afford a home of less than 300 square feet. Those who want to own more from the beginning should explore the heartland where a typical millennial could buy a 1,000 square foot home, or even larger in Memphis and Detroit. Los Angeles and California are merely out of touch for most young adults. A more affordable city could be Phoenix, Arizona, where millennials could buy a 1,400 square feet property at a reasonable price.
Expect millennials to contact at least two real estate agents when buying, and up to three when selling.
What do millennials want in a home? Since one in four millennials has children, they might be looking to purchase a home in a good school district or one of the best cities for families. They hate cookie-cutter floor plans and value wide open spaces, especially open kitchens, and big yards. They want to entertain so technology must be well integrated into the house. Energy efficiency is also a hot topic for them, and they look for automation such as a smart thermostat or automatic lighting control. However, millennials are young and restless so renting temporarily is not a big issue for them. 24% enjoy booking through Airbnb. According to MillennialMarketing, 79% of them would like to visit all the States, and 75% plan to travel abroad. Traveling and enjoying life is a top priority for them. Travel is expensive, though, so they look into ways of turning a home into a year-round resort. It’s called “homecation”!
But when the lust for adventure and the unknown is over, they start to crave homeownership. And the good news is that there are so many types of loans that it’s impossible not to find a financing solution for a starter home.
This was the millennial buyer profile. Next on our list is Generation Z.
Generation Z buyer profile
A new cohort of future homeowners is still in the education system. They live and breathe technology and can’t imagine a world without the Internet. Generation Z is also known as the iGen or the Net Gen. They are coming of age in a time when everything is possible on so many levels. Censorship has no place in their minds. We can see a lot of sexual confusion and their troublesome explorations often lead to unstable relationships that will take a toll on their financial lives.
Generation Z is superficial. They prefer a cool product over a cool experience.
Generation Z uses smartphones for 15.4 hours per week, according to Vision Critical Communications Inc. They embrace globalization yet are anxious about it after 9/11. Overall, Gen Z is optimistic about the future, and over 40% say they are happy. Research is still needed to understand this new group of consumers better, but one thing is for sure: they are disruptive. They don’t want to embrace the traditional career pathways; they don’t like the banking system and will probably embrace electronic currencies more than anyone else.
Generation Z doesn’t believe in the American dream anymore. BUT, according to RealEstateExpress, 97% imagine they will become homeowners one day, with their first home purchase between age 26 and 30. Over 80% say they will use a real estate professional in the process. Moreover, Generation Z values mobility and only 17% plan to live where they grew up. A key feature of their home buying behavior is that they are deal-hunters too and use their phones a lot whenever they buy something. Saving money is a top priority for them, but not when it comes to comfort. When traveling, they would rather stay in a hotel.
So, the Net Gen buyer profile has a lot in common with Millennial buyer profile. Gen Xers, though, demand respect.
Generation X home buying behavior
Unlike Millennials, who are in the spotlight all the time, little it is known about the Generation X. The most neglected generation, with a robust buying power and with a substantial savings account, this group is a force on the market, as they may start a real estate rental business as they approach retirement. They are more likely to buy a second home if they managed to keep the first one. According to the National Association of Homebuilders’ Eye on Housing in April 2016, 63.5% of them own their homes.
Their maturity allows them to take responsibility for a second mortgage. Let’s not forget that Generation X has been dramatically affected by the economic recession and the market crash of 2008/2009. Luckily, they have recovered fast. If their credit score had been chopped back then, now it is fully recovered and allows them to try again. Generation X prefers to buy new construction, preferably with yards and a lot of storage space like closets and cupboards. A home office will add extra points to a property as well.
Gen Xers want to be in control when buying a home. After all, they have learned their lessons through hard times. Now, Gen Xers are in their prime earning years. To rake in a median $106,600 a year is not unusual, given the fact that most of them have families. And as their children grow up, they might trade in their homes for larger, more luxurious properties.
Baby Boomers buyer profile
Baby boomer and older customers are an overlooked economic group in America – roughly 75 million people. Baby boomers are conservative, yet affluent. 15% of them have a Facebook account, but boomers spend a lot of time online and in front of a TV (174 hours a month). Can you believe that only 5-10% of all marketing is directed towards them?
When buying a house, they still want to get up in a car and drive around with a real estate agent. Their home buying behavior is quite predictable. They will have seen a few properties before they made an offer. They are slow! Baby boomers make up their minds very hard because they compare all the numbers and all the data they have gathered. You might be surprised, but most baby boomers were a lot younger than Millennials at their first home purchase. Now, they want to go to a coffee shop to discuss the properties after a showing.
Baby boomers have a lot of money to spend, and they’re not shy about spending on luxury. Memories and emotions are part of their decision-making process.
They would rather buy a home in the suburbs than in an urban area. In order to take care of their families, multigenerational houses were bought by 20% of baby boomers. This generation attempts to support their children who struggle with too much debt and to take care of their aging parent(s).
The silent generation
Active seniors redefine what it means to age. Those born between 1925 – 1945 are currently retired but have a significant impact on the real estate market not only due to their purchases but due to the estates their children will inherit. As their housing needs change, their family may choose to keep the properties or sell them and use the proceeds to provide the appropriate care or to finish a basement and turn it into an in-laws suit.
What can be said about senior’s home buying behavior? When they buy, seniors choose to move closer to family and friends. About 70% of them prefer single-family homes followed by townhouse/rowhouse at nearly 20%. Baby boomers and their parents tend to be loyal customers, so are very likely to work with the same real estate agents or brokers.
Preparing for their hardest years when they will have to deal with disabilities or various special needs, they are looking for properties that will make their life easier while maintaining a high level of privacy.
However, older people need special attention. Real estate agents must make sure that clients from this age group are in their right mind and make conscious decisions. Check their blood glucose level before signing any papers or invite a family member to assist whenever there is bureaucracy involved. Keep this in mind not only when buying but also when selling real estate. Alzheimer disease and other mental illnesses might not be obvious for rookie real estate agents. The silent generation needs help with their estate planning. Recent statistics reveal that between 55 and 60% of Americans do not have a will and trust, so their properties and estates will be split up during probate – an expensive and time-consuming legal proceeding. To avoid this scenario, contact a probate lawyer as soon as possible.
What makes the housing market so dynamic and unpredictable? The presence of so many different generations, all looking for a place to live for a longer or shorter period of time. Understanding each generation’s motivations and way of thinking, knowing the age of first time home buyers as well as the spending habits by generation should be the foundation of any marketing plan. What can you do next? Read our blog on how to use social media or find the best ways to achieve your sales goals for this year!