More house hunters are giving up on the search

The combination of affordability and rate pressures pushed active home searches down to pre-pandemic levels in the first quarter this year, as buyer interest appeared to wane.

Among prospective home buyers, the share who moved beyond planning to actively searching dipped to 46% from 60% one year ago, according to the Housing Trends Report from the National Association of Home Builders. As recently as the second quarter of 2021, the share of active buyers in the search process was at a high of 61%, but has fallen over the following nine months.

Percentages of actively searching consumers fell across all generations in the 12-month period, but was especially pronounced for millennials, whose share fell from 73% to 52%. Activity among potential buyers dropped from 57% to 49% among Gen Z, while for Gen X, numbers fell from 51% to 45%. Baby boomers experienced a smaller decrease, falling from 43% to 39%.

“A growing segment of prospective home buyers aren’t moving past the planning stage,” said Rose Quint, assistant vice president for survey research at NAHB, in a research blog post, noting that the share of borrowers in active-search phase had also fallen back to levels not seen since before the pandemic.

Consumers intending to make a home purchase over the next 12 months also fell on a year-over-year basis to 13% — its lowest point since mid 2020 — down from 16% in the first quarter of 2021. The Housing Trends Report was compiled through surveys conducted by Morning Consult based on a sample size of over 17,000.

Even while demand and home prices surged over the past two years, historically low interest rates helped lead the purchase market to record volumes in 2021. But the effect of benchmark mortgage rates jumping as much as 2 percentage points since the end of last year and continuing their rise upward for the greater part of the last two months could now be slowing activity.

While purchase activity remained robust through the winter, typically considered a quieter period, the normal uptick seen at the start of the spring season has thus far failed to emerge, according to data from the Mortgage Bankers Association. Rates passed 5% in early April, coinciding with the first weeks of spring.

NAHB also found the impact of affordability concerns beginning to make a dent in what consumers perceived they could obtain. The share of prospective buyers who now feel they could afford more than half the properties on sale in their market tumbled to 19%, the lowest since the pandemic’s onset as well. In the first quarter of 2021, closer to 35% of buyers felt they had the means to purchase half the homes available to them.

The data from the report shows “clear evidence that higher mortgage rates and double-digit growth in home prices are discouraging a growing share of buyers from engaging in the purchase process,” Quint said.

NAHB’s findings mirror concerns of buyers raised in a report from the National Association of Realtors this month. In NAR’s 2022 Obstacles to Home Buying, the lack of affordable homes was cited as the leading impediment for buyers across all racial demographics.

For those going through with an active search as well, the process is taking longer, with 67% of potential buyers now spending more than three months looking for a home, nudging up from 64% in the first quarter last year, the NAHB survey found. By comparison, between 2018 and 2020, fewer than 60% of those in the market spent more than three months finding a home.

The most common reason given from buyers taking longer than three months to close a purchase was the inability to find an affordable home, listed by 48% of them. It also is a contributing cause in the growing share of buyers now abandoning the home-buying process. In the first quarter, 25% of prospective buyers still in the market after three months said they planned to pause their search until at least next year. The share has increased over the past year from 20% in the second quarter of 2021, to 22% in Q3 and 23% in Q4.