This report, compiled by the Zillow Group, details New Consumer Housing Trends for 2018.
New construction in America: interested buyers, not enough homes
Among several home types they consider, 38 percent of total buyers add new construction to their list. That’s the good news. Only 11 percent of total buyers purchase a new construction home.
That’s not so good.
While affordability remains a challenge for home buyers of all types, it’s a lack of inventory that’s trouncing new construction sales: After almost two years of “lost” building, there should be millions more available homes on the market, but there aren’t — despite a multitude of interested, well-funded buyers clamoring for housing.
You know the industry; we know buyers
You know the reasons why new construction home inventory remains low. Zillow’s expertise is on the demand side: how home shoppers think about, search for and choose new construction homes.
This report is a drilldown on buyers, based in part on the Zillow Group Consumer Housing Trends Report 2018, which covers renting, selling, buying and owning a home in America today. We also conducted two supplemental studies to understand why home shoppers do or don’t choose new construction, and quantify their customer satisfaction with the new construction home buying process.
At the end of the day, we discovered that the allure of a brand new home — one that buyers can imprint with their individual style the moment the keys are in their hands — is what makes these home shoppers ultimately choose new construction.
We hope the knowledge and insights in the New Construction Consumer Housing Trends Report 2018 guide even more buyers to a new construction home.
BUYING NEW CONSTRUCTION IN AMERICA
The story of new construction today is one of gaps — the biggest, for prospective buyers, is the one between supply and demand.
There’s a chasm between growing populations in several major metros and an industry struggling to house them. When the housing bubble burst, new construction came to a screeching halt. After 10 years of issuing fewer permits for single-family homes and underbuilding in new construction, there’s a gap today of more than 2 million available homes in the U.S. market.
At the same time, a new cadre of experienced buyers is standing by with the money and the motivation to finally build their dream home, but very few can actually take it across the line: Among several home types buyers consider, 38 percent include new construction in their list. Eleven percent ultimately purchase a new construction home.
Despite these challenges, Zillow Group research suggests there is willingness and opportunity among experienced buyers and builders to narrow these gaps. For home buyers, it takes focus and flexibility. For builders, the priority is building better relationships with buyers, while balancing increasing costs to create places for people to call home.
THE TYPICAL NEW CONSTRUCTION BUYER
A buyer is defined as someone who moved into a home that they purchased within the last 12 months.
They tend to be older
The median age of today’ s new construction buyer is 47 years old — which is somewhat older than existing home buyers (40) — and thus they are also more likely to be repeat buyers, financially secure, living without kids in the home, willing to move farther and are more likely to be retired than existing home buyers.
Although Millennials (defined here as buyers ages 24-38) comprise a large segment of new construction home buyers (32 percent), two-thirds (65 percent) of these buyers are age 39 and older. Compare that to 53 percent of existing home buyers who are 39 and older.
The majority are repeat buyers
Nearly 3 in 4 (71 percent) new construction buyers are repeat buyers. Almost a third of new construction buyers (29 percent) paid in full for their home — meaning they did not get a mortgage or home loan — which is significantly higher than existing home buyers (22 percent).
Among buyers who obtained a mortgage, new construction buyers put significantly more down to purchase their home: More than half (52 percent) of new construction buyers put down 20 percent or more toward the purchase of their home, compared to 42 percent of existing home buyers.
New construction buyers may have larger down payments due to the fact that they are more likely to be repeat buyers who are also selling a home. Among new construction buyers who used financing to purchase a home, 45 percent used funds from the sale of the previous home to fund at least a portion of the down payment, compared with 38 percent of existing home buyers.
Proceeds from the sale of a previous home account for a significant share of the average new construction buyer’s down payment — 29 percent compared with 17 percent for the average existing home buyer. Higher-income buyers are more likely to purchase new
construction than an existing home: 44 percent of new construction buyers earn an annual household income of $100,000 or more compared to slightly less than a third (31 percent) of existing home buyers who bring in six figures or more. Exactly half (50 percent) of new construction buyers have a college education or higher.
More than half (55 percent) of new construction buyers who financed their home were not at all concerned about qualifying for a mortgage, which is significantly higher than 39 percent of existing home buyers who were not at all concerned about qualifying. Nearly a third (30 percent) of new construction buyers bought a home that was higher than their initial budget, which is significantly higher than existing home buyers, 22 percent of whom went over budget.
There’s little ethnic diversity among new construction buyers
Caucasian/white households represent the overwhelming majority of new construction buyers, accounting for 74 percent of purchases. Nearly 1 in 10 (9 percent) are Hispanic/Latino or Asian/Native Hawaiian/Pacific Islander, 6 percent are African-American/black, and 2 percent of new construction buyers are of another race or ethnicity.
What’s notable is that Asians, Native Hawaiians and Pacific Islanders compose a higher proportion of new construction buyers (9 percent) than existing home buyers (5 percent) — nearly twice as many. Most new construction buyers (73 percent) live with a
spouse or partner, but only 35 percent have children living at home. That’s significantly lower than the 48 percent of existing home buyers who live with kids. New construction buyers also have notably fewer pets under their roof: 56 percent of these households compared to 65 percent of existing home buyers with fur babies.
Many new construction buyers are still working
Nearly two-thirds (65 percent) of new construction buyers are still working — that’s significantly fewer than the 71 percent of existing home buyers who are still punching the clock. Notably 1 in 5 new construction buyers (20 percent) is retired, compared to just 14 percent of existing home buyers.
THE SEARCH FOR NEW CONSTRUCTION
More than ever, buyers use online resources to shop for everything — and that includes a new home. Because most new construction buyers (76 percent) search online, it’s crucial for builders to have a strong online presence that offers home shoppers a great experience.
New construction and existing home buyers take a similar amount of time searching for a home, with new construction buyers taking an average of 4.9 months compared to the 4.4 months that existing home buyers take to search.
Renting is not an option …
Nearly 3 in 4 (72 percent) new construction buyers do not consider renting; in contrast, about half (54 percent) of existing home buyers consider renting instead of buying.
… but moving farther away is
More than half (53 percent) of new construction buyers move from a different city, state or country, compared to 47 percent of existing home buyers who move that far. Since they tend to be older buyers, retirement — or preparations to discard the daily grind sooner rather than later — might factor into the distance new construction buyers are willing to move in order to live in a brand new home.
New construction buyers rely on their tech
When going online to search for a home, new construction buyers prefer to hunker down with a laptop or desktop computer to view websites: 68 percent use these devices, which is similar to 71 percent of existing home buyers who use them. When it comes to mobile devices, nearly half (46 percent) of new construction buyers view a mobile website using a smartphone or tablet; that’s somewhat lower than the 52 percent of existing home buyers who use mobile web.
More than a third (38 percent) of new construction buyers use an app on a smartphone or tablet compared to 45 percent of existing home buyers who use an app on a smartphone or tablet.
New construction buyers go offline more
Three in 4 (76 percent) new construction buyers use online resources, but they employ a wide variety of offline resources as well.
Nearly half (49 percent) of new construction home buyers rely on for sale/open house signs. Both buyer types rely on printed resources at about the same rates: 30 percent of new construction buyers and 32 percent of existing home buyers rely on print ads, and 19 percent
of new construction buyers and 21 percent of existing home buyers use direct mail.
They want a trusted guide for their journey
Nearly two-thirds (65 percent) of new construction buyers are likely to use a real estate agent or broker, and 40 percent ask a friend, relative, neighbor or colleague for advice during their search.
Not surprisingly, new construction buyers are significantly more likely to visit a home builder/sales center (60 percent) than existing home buyers (26 percent). But don’t keep them waiting: Of those new construction buyers who contact a sales center, nearly half (46 percent) expect a response within a few hours or less.
What new construction buyers value while searching
Hands down, what new construction buyers want is to take a private tour; more than 3 in 4 (77 percent) consider it very or extremely important. That’s similar to 79 percent of existing home buyers who give it the same weight.
More than two-thirds (69 percent) of new construction buyers say viewing the floor plan is a very or extremely important factor in deciding if the home is right — that’s significantly higher than 55 percent of existing home buyers.
The home’s integrity is also on both buyers’ minds: 69 percent of new construction buyers and 74 percent of existing home buyers say access to an inspection or a pre-inspection report of the home is very or extremely important. This may be driven by different motivations for new construction and existing home buyers, where an inspection may be a city requirement for a new construction home, while existing home buyers want to understand what kinds of re pairs may be necessary.
Access to comprehensive data and history about the home is also considered very or extremely important by 56 percent of new construction buyers and 59 percent of existing home buyers.
WHAT THEY WANT (AND WHERE THEY WANT IT)
By far, the majority of buyers who purchase a new construction home buy in the South (53 percent). Less than a quarter (22 percent) of buyers who purchase new construction buy in the West, while 16 percent are in the Midwest and 1 in 10 (10 percent) are in the Northeast.
Home types considered
The majority of people who purchase new construction homes (78 percent) initially consider a new construction home versus only 30 percent of those who purchase existing homes. That’s a significant difference and shows that once their heart is set on a new construction home, these buyers consider very few alternatives.
At the onset of their search, new construction buyers have a narrower consideration set of p roperties than existing home buyers do. One in 5 new construction buyers (20 percent) consider a for-s ale-by-owner (FSBO) home versus 43 percent of existing home buyers.
Only 17 percent of new construction buyers consider a lot or la nd with no existing home on it, similar to the 15 percent of existing home buyers who consider it.
The focus is on inside comfort
New construction buyers are more likely to consider air conditioning as very or extremely important (85 percent versus 74 percent of existing home buyers), as well as that the home h as their preferred number of bedrooms (83 percent versus 77 percent of existing home buyers) and a floor plan or layout t hat fits their preferences (81 percent versus 66 percent of existing home buyers).
A third (33 percent) of existing home buyers say the ability to rent out the home — or a portion of it — is very or extremely important, while only 24 percent of new construction buyers think the same.
New construction buyers mirror older generations of total home buyers
In many ways, new construction buyer home preferences align closely with those of all other home buyers who belong to the older generations. Both buyer types are generally less flexible with the home’s floor plan and place a stronger importance on finding a home with a layout that will meet their needs. For example, 71 percent of new construction buyers consider a spare or guest bedroom very or extremely important (as do 74 percent of Silent Generation and 66 percent of Baby Boomer total home buyers), but only 51 percent of Gen Z, 56 percent of Gen X and 59 percent of Millennial total home buyers give it that much weight.
When it comes to deciding on which home to buy, more than 3 in 4 (77 percent) new construction buyers won’t budge on a preferred number of bathrooms, nor will all buyers who are Baby Boomers and Gen X (72 percent each) and Silent Generation members (83 percent) who say it’s very or extremely important. However, only 56 percent of Gen Z and 67 percent of Millennial buyers attach the same
importance to a preferred number of bathrooms.
Most (81 percent) new construction buyers say that a floor plan or layout that fits their preferences is very or extremely important in their decision of which home to buy, just like 73 percent of Baby Boomers and 85 percent of Silent Generation total home buyers but notably unlike 55 percent of Gen Z, 66 percent of Millennials and 67 percent of Gen X.
Outside, safety ranks highest
When considering location, the top three very or extremely important neighborhood/community characteristics to new construction buyers are that the neighborhood felt safe (88 percent), is in their preferred neighborhood (60 percent) and is walkable (57 percent).
They’re OK with a bit of a drive
Only 47 percent of new construction buyers cite their commute to work or school as very or extremely important, compared to 55 percent of existing home buyers. Here, the older age of today’s typical new construction buyer, 47, might factor into their lower consideration of commute length.
Again, neighborhood preferences of the new construction buyer mirror those of older generations among total home buyers: When it comes to their commute to work or school for buyers overall, Millennials (68 percent) and Gen Z (66 percent) consider it as very or extremely important, unlike Gen X (56 percent), Baby Boomers (34 percent) and Silent Generation (9 percent).
Similarly, only 27 percent of new construction buyers find it very or extremely important to be in proximity to public transportation, as do 15 percent of Baby Boomers, 22 percent of Silent Generation and 23 percent of Gen X total home buyers, compared to 43 percent of Millennials and 40 percent of Gen Z.
Only 41 percent of new construction buyers put a priority on being close to family and/or friends compared to existing home buyers (48 percent).
Reasons for purchasing new construction
New construction buyers are drawn to the concept of the home’s newness and perhaps are comforted by knowing they probably won’t be replacing major appliances or a roof anytime soon. Nearly half of new construction buyers (49 percent) say their top reason for purchasing is because everything in the home is new or never used, 37 percent say it’s because the home is the best value for their money, and more than a third (34 percent) find appealing home features are the top draw.
WHY MOST DON’T BUY NEW CONSTRUCTION
Among several home types that buyers consider, 38 percent include new construction in their list; 11 percent ultimately purchase a new construction home. Zillow Group underwent a supplemental study to better understand why. Study participants included existing home purchasers who seriously considered new construction during their search. Study results reveal three key areas that influence home shoppers who consider new construction but ultimately choose an existing home.
Barriers and pain points
The factors that take new construction off the consideration list for all new construction home shoppers are location, timing and price.
Further interviews with the supplemental study participants show that their relationship with the builder will either make or break the new construction home shopping process.
SHOW THEM PROOF
Supplemental study respondents who ultimately rejected new construction think of new homes as unproven. They believe an existing home has more value because it’s demonstrated structural stability over time, it has a distinctive layout with character and charm, it has built-in neighbors and mature landscaping, and it’s in an established neighborhood. Plus, they can negotiate the price and move in sooner.
Perceived home quality and value
Between a new construction home and an existing home, supplemental study respondents identify new construction as having the highest quality and being a better choice, but ultimately consider an existing home the better long-term value.
Two-thirds (66 percent) of both buyer types in the supplemental study say a new construction home has the highest quality; 69 percent rate a new construction home as the best overall. Half (50 percent) of existing home buyers in the study say new construction offer s the average buyer updated features and a modern look. But when asked which home they think offers the best value, 62 percent of study
respondents point to an existing home.
SHOW THEM YOU CARE
Respondents in Zillow Group’s supplemental home buyers study want a better relationship with the builder. They specifically cite a lack of communication from the builder; unknowledgeable sales reps; and a lack of transparency on timelines, costs, delays and custom options.
As they begin their journey, buyers are excited and enjoy the process. They want unlimited access to online resources.
As their search progresses, buyers told researchers they feel overwhelmed or frustrated about making choices, so they shift to
consulting offline resources, seeking a trusted guide — whether that’s family and friends, a real estate agent, or the builder.
Supplemental study participants say they want more information available online, better search and explore tools, and deeper real estate agent involvement.
THERE ARE OPPORTUNITIES DESPITE CHALLENGES
Overall, nearly half (48 percent) of new construction buyers are satisfied with all aspects of the home purchase process, which is higher than the number of existing home buyers who felt that way (38 percent). Limited supply relative to existing homes is likely a factor of the 11 percent purchase of new construction homes in the U.S., but there is still an enormous opportunity for builders to convert more home shoppers to new construction buyers.
TIPS TO DEEPEN CUSTOMER RELATIONSHIPS
Interviews with buyers who considered but eventually rejected a new construction home provide insights on what builders need to do to keep home shoppers engaged and confident in choosing new construction.
- Be open and honest when communicating
- Respond quickly to shoppers’ questions
- Be timely in communicating delays
- Regularly meet with your staff so that everyone is on the same page with home and community information
- Provide a realistic timeline
- Offer proof of craftsmanship
- Provide assurances of quality material and that your not cutting corners
- Have a strong online presence and provide new construction home shoppers with an outstanding experience
- Connect with shoppers and buyers throughout the process
The new construction journey is a personal one
Affordability and lack of housing supply has made it difficult for younger buyers to realize their dreams of homeownership. In part because of that, today’s typical new construction buyer behaves much like all other home buyers who are Gen Xers, Baby Boomers and even members of the Silent Generation. As higher-income buyers — who are perhaps retired or close to it — new construction buyers focus first on being comfortable inside and safe outside.
Most new construction buyers are repeat buyers, but they still want a trusted guide on their journey — someone who pays attention and responds to their individual needs and, after the sale, keeps them informed about the progress of their home’s construction. New construction buyers look primarily to real estate agents to fill this role, but there’s an opportunity for builders to step up and make personal connections before, during and after the purchase — connections that will make or break the builder-buyer relationship.
Your previous home buyers are your asset
New construction buyers express high satisfaction with the process and are highly likely to consider new construction in the future and to recommend their builder.
• 98 percent definitely/probably would consider a newly constructed home in the future.
• 95 percent definitely/probably would recommend their builder to friends/family.
Highlight their stories in your marketing and share their exper iences with other home shoppers who want to know what
it’s like to work with you.
ADDENDUM: GIVE HOME SHOPPERS AN OUTSTANDING ONLINE EXPERIENCE
Most buyers today know they can always Google search their questions and get immediate answers. They also know their next
home is out there and are scouring the internet to find it. If your website is the one to provide information quickly and easily,
you can become their go-to person who can answer their new construction questions.
Here are some valuable tips on attracting and engaging new construction home shoppers online.
- Respond quickly to online inquiries, giving careful attention to their individual needs
- Keep your website updated and easy to navigate
- Provide high resolution images; swap out renderings as soon as you complete a home or phase
- Optimize your site for mobile viewing
- Show new construction home shoppers your turnkey and move-in-ready homes
- List your new homes alongside existing homes to maximize discovery
- Offer VR tours of your homes Share all your customization options, including prices, taxes and HOA fees
- Provide information on the updated, efficient and sustainable technology you use in your homes
- Offer warranty details
- Highlight neighborhood safety and security details
- Schedule model home tours
- Post customer reviews and testimonials on your website as soon as you get them
Zillow Group houses a portfolio of the largest and most vibrant real estate and home-related brands on the web and mobile. The company’s brands focus on all stages of the home lifecycle: renting, buying, selling, financing, and home improvement. Zillow Group is committed to empowering consumers with unparalleled data, inspiration, and knowledge around homes, and connecting them with the right local professionals to help. In addition, Zillow Group develops a comprehensive suite of marketing software and technology solutions to help real estate, rental, and mortgage professionals maximize business opportunities and connect with millions of consumers. Zillow Group’s portfolio includes: Zillow®, Trulia®, StreetEasy®, HotPads®, Naked Apartments®, and RealEstate.com. In addition, Zillow Group houses the business brands Bridge Interactive™, Dotloop®, and Mortech®. The company is headquartered in Seattle and trades on
NASDAQ under the ticker symbols Z and ZG. This report is also available online at the New Construction Resource Center.Go to https://www.zillow.com/resources/new-construction/consumer-housing-trends-report to view.
Post expires on Sunday April 28th, 2019