Home Buying

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HOME BUYING

Home Buying

Home Buying Planning

Introduction

The demand for residential real estate depends in the long run on characteristics of the population that move slowly over time. Researchers present a look at the implications of the baby boomers and the aging of the population on housing supply and demand. One factor is net household formation, which is the difference between newly created households and newly dissolved households in a year. A household, which is a group of related or unrelated individuals living at the same parcel of real estate, is a common unit of measurement by the Census Bureau. New households may be created when children leave their parents' residence and through divorce, for example, while the number of households may fall during marriage and death, for example. The average size of households, as well as the age, composition, and income of households, will influence the typical features found in newly constructed housing, because developers quickly respond to current market conditions.

Age, income, demographic mobility, and marital status also greatly influence whether the household rents or buys housing. According to the 2007 American Housing Survey (U.S. Census Bureau, 2008), 31% of households rent the houses that they live in, 24% own the houses outright, and 44% are making mortgage payments. Renters are on average younger and have lower incomes than non renters. Permanent, or long-run average income, appears to influence the decision on whether to buy more than current income. Transaction costs of buying and selling a house are large, and renters move much more frequently than owners. Getting married and having children appear to be big factors that explain the switch from renting to owning.

Issues related to buying a house

Housing vacancies are a closely watched measure in the housing market. For a given level of sales, as vacancies rise, the average time on the market increases. Increased time on the market will tend to lower market prices, because sellers face increased opportunity cost of funds if they cannot sell their houses. New house builders will also be more motivated to lower prices, and they will also respond to greater average time on the market by reducing new construction. Although vacancy rates are typically studied at the local market level, consider the recent drop in U.S. new housing demand. The U.S. Census Bureau (2009) reports that the U.S. homeowner vacancy rate increased very quickly over 2006, averaging 2.375 in 2006 compared to 1.875 in 2005. New house sales fell from 1.283 million in 2005 to 1.051 million in 2006. In December of 2005, there were 515,000 new houses for sale, and the median time for sale was 4.0 months, while in December of 2006, there were 568,000 new houses for sale, and the median time for sale was 4.3 months. The median price of new houses continued to rise for 2 more years, until falling from $247,900 in 2007 to $230,600 in 2008. Builders responded to these market changes and from 2005 to 2006, housing starts fell from ...
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